With all of the discussion surrounding repealing the estate tax and other significant tax reforms, it can be difficult to understand exactly how these proposed changes might affect your estate. For most people in the United States, the estate tax is not a concern. That is because you need an individual estate worth $5.49 million or more before the tax will even apply. However, there are still a number of other concerns to keep in mind in order to make the most informed decisions about your estate plan because there are a number of other factors that could impact the overall value of your estate. A recent article from Financial-Planning.com helps put some of these risks into perspective.
One of the biggest risks to assets in an estate is dying without an estate plan in place to protect them. While your estate may not be subject to the federal estate tax, it could be subject to significant state-level taxes and those penalties can take a large chunk of your assets if you do not have an estate plan in place. Intestate succession will also determine the percentage of your assets that will be distributed to the heirs covered by your state’s intestate succession statute. This may not be in line with how you want your assets to be distributed, so making sure that you have a valid and up-to-date estate plan is the first step in avoiding any hidden financial risks that could impact your assets.
Some Things You Can Do
There are a couple of proactive steps that you can take to make this process easier. For instance, the article suggests that if you have multiple real estate properties in different states, it could be helpful to transfer ownership of all of them to one trust. Not only can that minimize tax consequences in those individual states, but it makes for a lot less paperwork in the event that something does happen to you. Doing so can also save a significant amount of money on legal expenses when it comes to distributing assets or other probate-related concerns.
Trusts can also help individuals avoid concerns they have for how their assets will be handled once they are distributed. For instance, if you are concerned about an heir’s spending habits or ability to use assets responsibly, a trust can help you avoid the risk of that heir squandering all of their inheritance. You can establish a trust that gives specified yearly distributions or that holds assets until an age where you believe the heir may be responsible enough to handle their inheritance. After all, if you take proactive steps to decrease tax liabilities and other penalties that could significantly diminish the assets in your estate, it is worth exploring additional options to make sure that the assets you wish to have distributed last as long as possible.
You may also want to talk with your experienced estate planning attorney and a financial advisor to help understand portability requirements and restrictions that could apply to your estate plan. Basically, portability allows individuals to carry over exemptions and/or other “credits” that were unused by a spouse