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3 Things to Keep in Mind When Estate Planning

3 Things to Keep in Mind When Estate Planning

Estate planning is an important part of retirement planning for many reasons: You’ve worked hard for your money and want to see your children and grandchildren benefit. And, you want to see it passed down in the most efficient way possible. Unfortunately, costly mistakes are all too easy to make, from forgetting to name a beneficiary to not updating your estate plan over time. Since your estate and legacy plan is a part of your overall retirement strategy, it is important to discuss how you plan to transfer your wealth before you pass with your trusted financial professional. So, try and keep these three helpful things in mind when estate planning.

Many people may not know that their will does not control who inherits all of their assets, such as retirement accounts, life insurance, and annuities. In order to pass these on, you must name a beneficiary for each retirement account, insurance policy, and annuity. If you don’t, these assets will likely be paid to your probate estate, possibly triggering income tax. Believe it or not, some people incorrectly name beneficiaries; don’t forget to distinguish family members of the same name with signifiers like Sr. and Jr., and update last names in the cases of marriage and divorce.

Estate planning becomes more complicated when it comes to how to pass on a retirement account to minors or individuals with special needs. Children cannot claim assets without a court-appointed conservator to manage the asset until they turn 18. Individuals with special needs could benefit more from a trust rather than directly inheriting assets because if they receive too many assets they could no longer qualify for government benefits. You should also consider how inheritance could affect your beneficiary’s tax burden, and consult a professional for a tax efficient strategy.

It’s important to review your estate plan regularly, and update it when there are major life changes like the birth of a new beneficiary, marriage, divorce, or when beneficiaries become eligible to receive money. How you distribute assets may change over time, as could your own financial situation. All of this is part of your financial and overall retirement plan, thus making it crucial for you, your family, and your trusted financial professional to discuss.

Here at Peak Financial Freedom Group, we understand the importance of properly passing on your hard-earned money to your loved ones the way you want when you pass. We want to help you create a comprehensive retirement plan that takes this into account by making sure your assets are passed on in the most efficient way possible. Don’t wait to start planning for the inevitable. You may need to create an estate and legacy plan from scratch or simply update your existing one, so click HERE to schedule your complimentary financial review today.

Estate Planning for Your Loved Ones

Estate Planning for Your Loved Ones

An estate plan is like a car; it requires regular maintenance, and may need parts replaced as it ages. Some experts recommend reviewing your estate plan every three years, or after a major life event. You may need to update your estate plan to reflect the changes to the tax code, as well as life events like the death or birth of a beneficiary. You also should consider if your beneficiaries are prepared to receive money, or if they still are, even if they were when you originally laid out an estate plan.

One of the changes to the tax code to note this year it that there is no longer federal tax on estates valued between $5.6 million and $11.2 million for singles, and on estates worth up to $22.4 million for married couples. This could mean the opportunity to pass on more of your wealth to your heirs, but with that opportunity comes a responsibility to make sure they are fit to receive your wealth.

The most obvious case of when an heir is not ready to inherit money is if they are a child: Children under 18 years old cannot sign legal contracts, and insurance companies, financial companies, and the court system will not release large sums of money to children in their own names. Without some preparation, the court system can take custody of your child heir’s funds, and there could be little control over how the money is used. This is why it’s important to update your estate plan after the birth of a new heir.

There are of course reasons why children are not given direct access to their inheritance; the part of the brain responsible for decision-making doesn’t fully develop until around age 25. It’s also possible that someone over 18 is not fit to receive a large sum of money if they, for example, have a substance abuse or gambling problem, a disability, or are being sued or going through a divorce.

Setting up a trust can help by appointing a trustee to oversee that the funds are being used properly. A trust can also help to protect the assets from lawsuits, bankruptcies and divorces. If you have reservations about your heir’s ability to handle their own inheritance, including a trust in your estate plan could make sense. Estate planning can be an important part of a retirement plan and setting up a trust can be a significant estate planning step.

You’ve worked hard to earn what you have, and should feel confident about the plan for your legacy. The professionals at Peak Financial Freedom Group can help you with estate and legacy planning, so click here to schedule your no cost, no obligation financial review.

How to Pass on a Retirement Account

How to Pass on a Retirement Account

Estate planning is complicated: The fair decision may not actually be the most practical one. What does this mean? It means that even if you divide up your estate equally between your beneficiaries, they could get hit with unequal tax burdens. So, good estate planning requires more than just good intentions. If you plan on leaving a legacy, you should take each of your beneficiary’s finances into account when dividing up your assets.

Estate planning is so crucial because when a beneficiary inherits an investment account, they also inherit income tax liability. When someone inherits an IRA, they will owe federal and possibly also state taxes on the funds for as long as they make withdrawals. When someone inherits a taxable investment account, they pay taxes annually on interest and dividends in addition to capital gains. When it is passed on, unrealized gains are eliminated for the beneficiary, allowing the beneficiary to inherit the account with no income tax liability.

These facts matter even more if the beneficiaries are in different tax burdens. For example, if one beneficiary is in the 35% tax bracket, and another is in the 10% bracket, the first could end up with tens of thousands less than the second if they inherit equal amounts from an IRA because of their different tax burdens. To minimize taxes, the first beneficiary could inherit assets from taxable accounts, and the second could inherit IRA funds. On face value, these might be unequal amounts, but when each beneficiary’s tax burden is taken into account, the overall tax burden and the difference between what each end up with could be significantly reduced.

If you want to take on the tax burden instead of leaving it to your heirs, you can convert to a Roth IRA during your lifetime. Considering the relatively low tax rates and recent market volatility, you might be considering if now is the time to convert to a Roth IRA. That way, funds can continue to grow tax free in the account, even after it is passed onto a beneficiary.

Discussing how you will distribute assets with your beneficiaries can help avoid conflict between them if it appears that one is receiving more than the other. Explaining the complexities of tax burdens and taxable accounts versus tax advantaged accounts can be a good idea if you’re distributing your inheritance unequally.

Most importantly, be smart about your estate planning so that what you’ve earned gets passed on to the people who are important to you. The best plan isn’t always the simplest, so consult the professionals at Peak Financial Freedom Group. We can help you divide your retirement accounts and assets among your beneficiaries. Click here to visit us online and schedule you no cost, no obligation financial review today.

Significant Estate Planning Steps

Significant Estate Planning Steps

You made sure your kids wore helmets, ate their vegetables, and looked both ways before crossing the street when they were small. Why? Because you worried about their safety. Protecting your children financially is no less important. Rather than leaving them to figure out a plan for finances and medical care in the event of your death or incapacitation, you can create a living Will, a traditional Will, a health care proxy, and designate beneficiaries. Taking these significant estate planning steps can help ease the burden on your loved ones.

Create a Will

A Will allows you to leave specific assets to designated loved ones, and name a guardian for your children if they are not of legal age. Creating a Will is easy, and makes your wishes legally binding, which is why estate planning is so crucial. Wills can help limit arguments among siblings, as big-ticket items like houses, cars, and jewelry, as well as objects of sentimental value are clearly bequeathed to one person.

Name Beneficiaries to Retirement Accounts

You can name a beneficiary for your 401(k), 403(b), IRA, and HSA in the event of your death. You can designate children as the beneficiaries even if you have a spouse, and these designations can supersede Wills.

Designate a Heath Care Proxy

A health care proxy, also known as medical power of attorney, is a document that identifies an individual to make decisions for you if you are unable. If there is a medical emergency and you are without one, even your spouse or children won’t have legal authority to make medical decisions for you. Parents can also remind their children to create a health care proxy for themselves once they turn 18, otherwise even as their parent, you will not be able to make medical decisions for them.

Create a Living Will

An advance medical directive, or living will, allows you to state your wishes regarding issues such as life support and organ donation in case of an emergency. If you don’t have a living will, family members may not know what to do regarding your health care and argue over serious issues.

A living Will, traditional Will, health care proxy, and designated beneficiaries become very important in the cases of death and emergencies, when family members will probably feel least able to make important decisions because of grief and stress. Securing your child’s future after your death and taking steps to relieve their stress if you become very ill are important parts of being a good parent.

Planning ahead of time can help you avoid major problems in the future. We will help you look to the future and plan for all aspects of retirement including significant estate planning steps. Click here to schedule your complimentary, no obligation review today.

 

Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

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