“If You Fail to Plan, You are Planning to Fail” – Benjamin Franklin
No one ever plans to fail; it is never intentional. We do not launch initiatives with failure in
mind. Instead, we seek success. When we start a business, make an investment, or take on a
new venture – retirement, parenthood, or a cross-country move – we experience both success
What’s key is gaining knowledge from our accomplishments while simultaneously learning wisdom from our disappointments. Sometimes, the obstacles we encounter are not preventable, and
no amount of planning could have prepared us to navigate them. Fortunately, when it comes to
estate planning, we do have planning tools that can help minimize unwelcome surprises and
provide the peace of mind that comes from knowing that your assets will be managed according
to your wishes. Here are the questions to ask when determining whether your estate plan is
responsive to your needs and those of your family.
1. Do You Have an Estate Plan?
Estate planning involves determining how your assets will be preserved, managed, and distributed
after death. Assets that make up an individual’s estate include houses, cars, stocks, artwork, life
insurance, social media, and pensions. In his book, “Ducks in a Row,” Harry Marqoius writes
that most people take up estate planning at two times in their lives – when they have children
and when they retire. There are various reasons we choose to plan our estates. It can be to
preserve family wealth, provide for a surviving spouse and children, fund education, or leave
a charitable legacy behind. While a common misconception is that estate planning is only for
the wealthy, the reality is that anyone with financial assets should ensure that their money is
properly managed after death. Although 90% of people report being open to discussing end-of-life options, CNBC reports that 67% of Americans have no estate plan. So, what is the disconnect between thought and action?
Why are we not taking action to make sure our affairs are in order? The number one reported
reason for not creating an estate plan is not knowing where to start.
Judith Gramali, in her book, “5@55,” recommends that every person have the following five
documents in place by the time they are 55:
- Healthcare Advance Directive
- Living Will
- Power of Attorney
- Last Will and Testament
- Authorization to Access Electronic Records and Media
2. What Advanced Tools Should You Be Considering?
While these five essentials form the basics of an estate plan, there are other important tasks to
consider as part of your proactive planning:
- Setting up trust accounts to alleviate estate taxes
- Establishing a guardian for living dependents
- Naming an executor to oversee the trust or will
- Setting up funeral arrangements
- Establishing annual gifting to qualified charitable organizations to reduce a taxable estate
Types of Trusts
A trust can be a crucial part of your overall estate plan. A trust is a highly versatile legal instrument that creates a fiduciary relationship given by the trustor to a trustee. The trust has the right
to hold title to property for various assets for the benefit of a third party, the beneficiary. Trusts
can be categorized as revocable or irrevocable, living or testamentary, and funded or unfunded.
Living trusts can be revocable or irrevocable. Testamentary trusts specify what happens after
death and are only irrevocable.
Revocable vs. Irrevocable Trusts
A revocable trust is the most common type of trust. It is incredibly flexible and can achieve
many goals, including tax, long-term care, and asset protection planning. Revocable trusts are
often called living trusts, and the secret to making them work is to fund them. Failure to fund a
revocable trust can undermine its original purpose.
A revocable trust can help your estate avoid probate, while an irrevocable trust can help limit
your exposure to estate taxes. With an irrevocable trust, its terms cannot be modified, amended,
or terminated without the permission of the grantor’s beneficiary or beneficiaries. The grantor
legally removes all their ownership rights to the assets and the trust by transferring assets into
the trust. Irrevocable trusts are predominantly set up to minimize estate taxes and protect
assets. The irrevocable trust contrasts with a revocable trust that allows the grantor to modify
the trust while they are still living.
Depending upon the complexity of your estate plan, there are two types of charitable trusts to
- Charitable Lead Annuity Trust (CLAT) – A charitable trust where a charity, donor-advised
fund, or foundation receives annual payments, either for a term of years or for the grantor’s
lifetime. At the end of this defined period, the remaining CLAT assets are distributed to the
CLAT’s non-charitable beneficiaries – usually the grantor’s descendants, or trusts for the
- Charitable Remainder Unitrust (CRUT) – As a type of charitable trust, the donor receives an
income stream from the CRUT for a term of years or for life, and the donor’s designated charity
receives the remaining trust assets at the end of the trust term. Meaning, the remaining
CRUT assets are distributed to the charity at the end of this defined period. This is the most
popular and most flexible of charitable trusts.
3. What Do You Want Your Legacy to Be?
Estate planning and legacy planning are essentially the same as both require us to be intentional
in determining our goals. A properly prepared estate plan will detail your wishes in the most
Estate and Gift Tax Considerations
In 2022, the lifetime estate and gift tax exemption increased to $12.06 million. The lifetime
exemption will decrease to approximately $6.2 million at the end of 2025 unless the tax law
changes. An individual can gift up to $16,000 per donee each year without limiting the number
of donees. Certain assets receive a “step-up” from their original cost basis, meaning the new
basis of the investment transitions to this higher value at death or fair market value at date of
death, easing any long-term capital gains liability.
It is a common misconception that individuals must pay gift taxes if they gift more than the
annual exclusion to a single recipient. Any gift above the annual exclusion counts against your
lifetime exemption and should be reported on a Form 709 gift tax return.
How Long Has It Been Since You Reviewed Your Estate Plan?
Estate planning is for everyone, no matter age or income. Fidelity recommends that you review
your estate plan every three to five years or any time you have a significant life event. Additionally, it is good practice to keep a detailed, itemized list of your assets so that items are not
missed when it comes time to complete a final inventory your wealth in order to settle your
Unfortunately, you put your loved ones in a time-consuming, expensive, and stressful situation
if you die without an estate plan. It’s not only for the benefit of your loved ones, but it also
benefits you to plan. If you have a clear directive, you can rest assured that your wishes will be
carried out. A planned legacy is one of the best gifts we can give to those we love.