While some aspects of estate planning can seem pretty rigid, it is important to look at them while keeping an eye on things that will allow for some flexibility. By building flexibility into your estate planning tools where it makes sense, you can save yourself from headaches down the road and also plan effectively for the unexpected events that happen during life. Additionally, flexibility in your approach to estate planning will allow you to effectively plan for changes in tax policy and even the value of your assets so that such changes will not significantly impact your ability to distribute your assets according to your wishes.
Determine Tax Consequences
One of the first things to do when building flexibility into your estate planning portfolio is to determine which options will have the greatest impact on taxes, not only for you but also for your heirs. This is especially important for younger people beginning the estate planning process. One of the most common questions is whether or not you should try to distribute your assets through lifetime gifts or if you should keep them in your estate to be distributed later. Without having a crystal ball to predict the future of the estate tax, this really depends on the current and potential value of the assets in question.
Right now, the estate tax exemption sits at $5.49 million. That means you will not be liable for the estate tax if the value of your estate falls under this threshold. However, for estates that are close in value to surpassing the exemption, it may be wise to distribute all or part of certain assets in a way that keeps you within the lifetime gift tax exemption – which is currently set at the same threshold as the estate tax. However, it is also important to remember that there is an annual gift tax exemption of $14,000. That means you cannot simply make a large lump sum gift to avoid the estate tax but must instead plan efficiently for long-term disbursements.
Varying Your Estate Planning Portfolio
One of the best ways to plan for the unexpected is to make sure that you utilize a variety of estate planning strategies to maximize your ability to distribute your assets as you see fit. It is almost impossible to predict your future financial situation and also accurately forecast changes in tax policy and other laws that can impact your comprehensive estate planning strategy. By using various estate planning tools, such as a trust, you can still plan effectively even for the unpredictable future.
Even with irrevocable trusts, the trustee may have the ability to force those assets back into your estate if the irrevocable trust proves to be less effective at meeting your needs down the line. This isn’t always the best option and may actually increase your tax liability, but being aware of your ability to activate certain mechanisms carefully built into your estate planning tools will help you make more informed decisions about your estate planning needs. An experienced estate planning attorney can help you understand the benefits of various types of trusts as well as whether or not such vehicles can help meet your estate planning goals.