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5 Estate Planning Tips to Keep Your Money in the Family

Setting up an estate plan isn’t something that many people look forward to, but having certain things in order can be extremely helpful when you pass and it comes time to manage and distribute your estate. One common factor that prevents people from creating an estate plan is the idea that only individuals or families who have a certain amount of wealth need to have an estate plan. However, this couldn’t be further from the truth.

If you have any type of personal property that you find valuable, if you have savings accounts or retirement accounts, then you need to make a plan for what happens to these assets when you die. When there aren’t any beneficiaries (the people who will receive financial or real property assets) designated, or when there isn’t someone named to manage your estate, a court-appointed executor (the person who manages your estate after your death) will make these decisions for you. The court may appoint a spouse or family member, but they often don’t know what your wishes are and simply have to make decisions based on what they know about you.

Another reason to create an estate plan is to prevent heirs from being responsible for paying estate taxes on retirement accounts and property. If your net worth is above $5-6 million, then heirs are responsible for an estate tax. Whatever your net worth is, it’s incredibly important to meet with an estate planning attorney who can help prepare your estate for the future so that there is as little impact for remaining heirs as possible.

How Does Estate Tax Work?

If your estate is at the federal exemption limit, which is $11.58 million as of 2020, then you will pay estate taxes on everything above that limit. How much tax you owe is calculated by adding up all of your assets and subtracting your total debt. Assets include everything from savings, retirement, and investment accounts, as well as your home, car, boat, art, business properties, and more. When all of these assets are being taxed, and there is only a certain amount of liquid assets available (money in the bank), then heirs will need to quickly sell other assets in order to afford the taxes. So, how can you prevent your remaining family from having to pay a significant amount of money in estate taxes?

Give Money to People Now

Rather than waiting until after you pass for beneficiaries to receive assets, you can start gifting money in smaller amounts so that it won’t be taxed. Gifting money now will reduce the value of your estate, lowering the tax load later on. Keep in mind, however, that the gifts will count against the $11.58 million exemption. An individual can gift up to $15,000 per person per year, or $30,000 if you’re married.

Create an Irrevocable Life Insurance Trust (ILIT)

If a wife has a life insurance policy and the husband is the beneficiary of that policy, if the wife were to die, the husband would have to pay taxes on the death benefit. In addition, if your estate is $20 million before the husband dies and the life insurance policy is worth $5 million, the estate is now worth $25 million, and that new amount will be taxed the estate tax. By restructuring the life insurance policy with an ILIT, it prevents the life insurance death benefit from being taxed.

Set Up a Charitable Trust

Similar to gifting money to heirs, you can create a charitable trust that assets can be transferred into. There are two types of charitable trusts: remainder trusts and lead trusts, but both work essentially the same way. A charitable trust acts as a placeholder for your assets, which can be hard assets, investments, or cash, and effectively removes that wealth from your estate. If you own a home, you could assign the house to the trust; when it is sold, the proceeds would go into the trust. Creating a charitable trust needs to be set up correctly so that it functions properly. This requires a specialized team, including a tax accountant, estate attorney, and a wealth manager.

Convert Traditional Retirement Accounts Into Roth Accounts

If the beneficiary of a traditional IRA or a 401(k) is not a family member, the amount that they receive is subject to income tax. Many people believe that if they were to designate someone as their beneficiary, that the beneficiary would receive the full amount of the account. Beneficiaries of these accounts are able to spread out the income and tax payments, but this may change in the future. Instead, you can convert retirement accounts into Roth accounts, which have tax-free distributions (the money is taxed when it is added to the account). This will ensure that your beneficiaries don’t have to worry about being taxed on money they receive.

Set Up a Family Limited Partnership or a Foundation

With either a family limited partnership or a foundation, you’re establishing a new organization that is funded through your estate and is under the control of your estate. In most cases it’s a charitable organization, but the type of foundation is entirely up to you. At the time of your passing, the management of the organization transfers to the “limited partners,” the transferring of which is tax-free. This option, similar to creating a trust, needs to be set up correctly and with the guidance of an estate attorney so that it functions properly.

Partner With Goldberg & Associates For Estate Planning Services

Unfortunately, there are tax implications when creating an estate plan and for those receiving the assets when you die. With the help of an estate attorney from Goldberg & Associates, we can look closely at your financial situation to determine which option best suits your needs. Our law firm has years of experience and in-depth knowledge of what options are available and how to set them up correctly so that they can be beneficial.

Our office has three locations in Georgia, including Peachtree City, Griffin, and Atlanta. Learn more about our estate planning services, and schedule an appointment with us today.

At Goldberg & Associates, we specialize in handling elder law and elder law cases. All of our resources are at your fingertips when you work with Goldberg & Associates. We will do everything in our power to ensure the maximum amount that can be saved, will be saved for your retirement. No stone goes unturned at Goldberg & Associates; we are prepared to make sure you do everything you need to in order to max out those savings options, and make way for the time when you will get to retire.