Why An Estate Plan Is Essential For Investors

July 30, 2021

A new President brings new priorities and a new fiscal plan to fund those priorities. Consequently, there has been much discussion this year of potential impacts to income and estate taxes. Despite a lot of conversation and preliminary proposals, we still lack clarity on what changes may ultimately be enacted. As such, it is still early to make major estate planning changes based on conjecture.

Under current estate tax rules, the federal estate tax exemption amount is a historically high $11.7 million per person or $23.4 million per married couple. The combination of a high current exemption amount and an uncertain legislative future highlights another important estate planning truth; there are many non-tax related reasons to maintain an effective estate plan.

The larger estate tax exemption we’ve enjoyed in recent years has left many investors with non-taxable estates to question why they need an estate plan. For individuals who have minor children, own a business, or are part of a blended family, an estate plan is especially prudent. Otherwise, families can face difficult uncertainties with guardianship for minors as well as the potential turmoil and delay of probate court.

Family is in fact cited by many as an utmost priority when it comes to planning financial affairs. The truth is that family relationships can be greatly stressed in the aftermath of the passing of a loved one, particularly when that person had multiple spouses or children with different partners. A well-crafted and well-communicated estate plan goes a long way to preserving good family relationships.

In a city like Savannah, which prides itself on its historic charm, the lack of proper estate planning has unfortunately impacted many historic properties over the years. If title to property is not clearly transitioned from one generation to the next, disputes typically arise, and properties fall into a state of disrepair. Tax liability aside, these reasons alone make meeting with an estate planning attorney and a financial advisor to draft or update an estate plan a smart idea.

According to a survey by Caregiver and caring.com, two out of three adults do not have a will. Most Americans who do not have a will cite procrastination, expense, and lack of knowledge about how to proceed as their common reasons. More than a quarter of those surveyed believe they do not have enough assets to leave behind.

The Importance of Planning

By any measure, planning is essential when it comes to ensuring that your estate will transition according to your wishes. Specific bequests can get complicated, so it’s especially important to exercise caution when incorporating them and to review those requests periodically.

As you may expect with any legal document, precise language is important and particularly so for specific bequests. For example, a will could state a directive to leave “200 shares of Apple stock to each of my two daughters.” If the stock owned when the will was written was sold before the person’s death, the estate may be obligated to purchase 200 shares to give to each of the two daughters. If, instead, the will stated to leave “200 shares of my Apple stock to each of my two daughters,” but those shares were sold before the person’s death, the estate may not be obliged to purchase shares to fulfill the intended bequest. The difference of one word can have a profound impact when it comes to estate planning.

These considerations take on a greater importance for high-net-worth individuals. Strategic planning will not only help preserve wealth, but it will also ensure the transfer of wealth according to the individual’s wishes, to support favorite causes, and importantly to preserve family harmony.

Trust Options

We receive questions from clients about the potential to incorporate trusts as a part of their estate plans, and one important distinction is the difference between revocable and testamentary trusts. A revocable trust, sometimes referred to as a living trust is created and funded during the grantors lifetime. The creator or grantor of the trust can retain control of trust property during their life. Once established, assets like investments, bank accounts, and real estate are transferred to the trust, relieving the individual of ownership while they maintain control. Revocable trusts can provide a variety of benefits, including privacy and avoiding probate. Revocable trusts can also provide a smoother transition for loved ones to step in to manage financial affairs in the event of an unforeseen health event. The flexibility, protection, and privacy offered by a revocable trust make it a popular option worth considering.

An alternative option to a revocable trust is a testamentary trust. Testamentary trusts are established by instructions in a last will and testament. When someone passes away, their will goes through probate. Once the executor elects to fund a testamentary trust, it becomes irrevocable. Three parties are typically involved in a testamentary trust: the grantor who creates it, the trustee who manages the assets, and the beneficiaries named in the will. The trust typically expires upon a certain event or date, such as a beneficiary reaching a specified age. Individuals with younger or disabled children, or families planning for multiple generations, often choose a testamentary trust.

Trusts can be complex, especially for high-net-worth individuals, so it is critical to have an experienced estate planning attorney help you evaluate what’s right for your circumstances. The Fiduciary Group does not offer legal services, and we are fortunate to work with many talented lawyers who specialize in the area. A good estate plan though should work hand in hand with your overall financial plan, and our experience is that consulting with your broader team of advisors promotes the best results. Our long history of serving in various fiduciary capacities also helps us offer valuable perspective on how certain strategies unfold in practice.

If we can be helpful as you consider updates to your estate plan, please reach out to us for assistance.