What is “Estate Planning”?

What is “Estate Planning”?  Estate planning is the process of understanding the ownership structure and the beneficiary structure of your assets to ensure your property is transferred to the desired parties upon your death in a headache-free and tax efficient manner.

In other words, how are your assets owned, who should inherit the assets, and are things structured to accomplish your wishes?  Furthermore, what are the tax implications of such transfers and how can Federal and State estate or inheritance taxes be mitigated?

What are some of the common estate planning tools?

  • Last Will and Testament
  • Beneficiary Designations and Transfer on Death (TOD) and Payable on Death designations
  • Trusts—both revocable and irrevocable—are customizable, and there are several types of trusts structures to accomplish your goals.
  • Healthcare Power of Attorney
  • Financial Power of Attorney
  • Business Succession Plans and Buy/Sell Life Insurance Plans

What are the most common pitfalls of failing to develop and periodically review your estate plan?

Probate: Probate can be a lengthy, expensive (fees are generally set by statute), and public process where the local court determines who shall receive your assets when a joint owner or beneficiary is not designated. This can be especially true in California; however, some States’ probate processes are more streamlined and efficient, particularly for small estates.

Incomplete or inaccurate beneficiaries: Your IRAs, 401(k)s, 403(b)s, Deferred Compensation, and Pension plans should have both a Primary and Contingent beneficiary. Even your home and individually owned assets may have a beneficiary using the “transfer on death” (TOD) or “payable on death” (POD) designations.

Variable Annuities: Non-IRA variable annuities can be poor estate planning tools as the cost basis does not “step-up” upon the death of the owner(s). Understanding the pros and cons of such vehicles before purchasing them is important.  With few exceptions, variable annuities have relatively high expenses and restricted liquidity.

Common Estate Planning “Myths”

Myth: A Will avoids probate.

Truth: Your Will does not avoid probate—the court uses your Will to give legal authority to your designated Representative (Executor) so that he/she may collect (marshal) your assets, pay all debts, taxes, and creditors’ claims, and distribute the remaining assets.

Myth: I won’t owe estate taxes because my estate is below the Federal exclusion amount.

Truth: Some States have inheritance taxes, estate taxes, or both. Understanding your State’s tax law is important. For more information, click here.

Myth: My Federal estate tax exclusion is automatically “portable” to my spouse. 

Truth: Federal law imposes an estate tax on the transfer of assets owned at death. Currently, the estate tax begins on estates valued at more than $11.4 million (as of 2019).  Since assets pass between spouses tax free, the tax exemption for a married couple is doubled (total of $22.8 million).  In order to take advantage of your spouse’s Federal estate tax exemption, you must file the 706 tax return. For more information, click here.

If your estate planning documents are complete, we recommend backing them up within the Vault within the Gamble Jones Client Portal.

If you don’t have an estate plan or haven’t reviewed it in several years, please contact us to review your unique situation. 

All the best,

Your Team at Gamble Jones