At 360 Financial, we believe estate planning plays an essential role in any good wealth management plan. Through the estate planning process, legal documents such as healthcare directives, wills and trusts are created to make provisions for carrying out your wishes. Although your 360 Financial wealth management advisors can’t provide legal advice, we can connect you with qualified estate planning legal professionals and work closely with them to ensure your estate plan aligns with your big picture wealth plan.
It is one of many essential legal documents needed to help ensure your wishes are carried out after your death. A will can also help avoid probate headaches and streamline the transfer of your assets to your beneficiaries. But there’s more to estate planning than merely writing a will.
Estate planning can also provide for your long-term care needs, protect your assets from creditors and lawsuits, and create trusts that benefit your family by limiting tax exposure. Collaborating closely with a qualified estate planning attorney, your 360 Financial wealth management team can develop a comprehensive estate plan that ensures your legacy is carried out according to your wishes.
The easiest way to avoid probate pain is to plan ahead and take the necessary estate planning steps to ensure it’s a smooth and timely process. All estates go through probate. When the proper legal documents are in place that clearly state your wishes, the process can be relatively smooth. Without these documents, the state takes over the role of distributing your estate, which can be costly and time-consuming.
Appointing the right executor for your estate is vitally important. Ideally, an executor is someone you trust and have known for a long time. Often, it’s a family member or close friend.
It should be someone who’s responsible, fair, and can leave their own personal opinions and emotions out of the equation to make sure your wishes are carried out. Remember that if you don’t appoint an executor, one will be appointed for you by the state, costing time — and money that will be paid by your estate.
Appointing the right executor for your estate is vitally important. Ideally, an executor is someone you trust and have known for a long time. Often, it’s a family member or close friend. It should be someone who is responsible, fair, and can leave their own personal opinions and emotions out of the equation to make sure your wishes are carried out.
The government gets plenty of your money while you’re alive. Proper planning for estate taxes can help make sure they get less of it after you’re gone. A qualified estate planning attorney can structure your estate plan in ways that reduce your beneficiaries’ tax liability. The amount of tax your heirs will owe is based on the value of your estate after any outstanding debts and taxes are paid. Estate taxes differ from state to state, but estates valued at less than $12.92 million in 2023 are exempt from federal estate taxes.
The more your estate is worth, the more it makes sense to consider various types of trusts. Trusts can address several estate planning challenges. They can protect and preserve your assets. They can reduce tax liability for your beneficiaries. And they can be structured in ways that solve for complex family dynamics. Because almost any type of asset can be placed into a trust, they’re a helpful way to manage and consolidate your estate.
There are several benefits to a revocable living trust. The most important is control. This type of trust gives you control over how your assets will be distributed. For example, if a beneficiary is younger, it allows you to add clauses that delay the distribution of an inheritance until the recipient reaches a certain age. It can be changed and updated at any time while you’re still alive, which is helpful when life circumstances change, such as in the case of divorce. Another benefit is simplicity. Investing a little time and money now to set up a trust with your estate attorney can save your family the hassle and expense of probate after you die. Revocable trusts are highly customizable and can be creatively tailored in ways that address complex family dynamics while reducing your family’s exposure to inheritance tax.
Using life insurance in your estate planning is a great example of how wealth management and estate planning can work in tandem to ensure your long-term goals are met. The death benefit on your life insurance policy can help your heirs cover your funeral expenses and pay any outstanding debts and taxes, which become your estate’s responsibility when you die. Additionally, since death benefits aren’t subject to taxes, your heirs can use that money to cover any inheritance taxes they might incur. This can be especially helpful when much of an estate’s value is in non-liquid assets that the family would rather not have to sell to cover taxes, such as real estate.
It starts with making a list of all your assets. First, include tangible assets like your home, vehicles, boats, any land you own and any valuable personal possessions such as collectible art or jewelry. Then list your intangible assets like your bank accounts, retirement accounts, stocks and bonds, life insurance policies and any businesses you have ownership in.
Once you’ve created an inventory of your assets, the next step is to work with an estate planning attorney to create a series of important estate planning documents that make legal provisions for how you would like your assets to be distributed after you die. These typically include wills and/or trusts, power of attorney and a healthcare directive that states your wishes for medical care if you become incapacitated. Within these documents, you can also make other important provisions like naming your beneficiaries, appointing an executor for your estate and a guardianship designation if you have younger kids.
Although the basic principles are the same in every state, each state has different laws and rules governing taxes, probate and other aspects of estate planning. Working with an estate planner who understands the nuances of estate planning in your state can help minimize your estate’s exposure to taxes and ensure your wishes are carried out after you die.
When putting your estate planning team together, it’s important to think holistically and keep your big picture wealth goals in mind. Some of the key people an estate planning team should include are:
Your 360 Financial team understands the nuances of estate planning in Minnesota. Minnesota has a $3 million estate exemption before your estate is taxable at the state level. This exemption amount is not portable between spouses.
Additionally, Minnesota does not have a gift law, which means you can gift an unlimited amount of assets, unlike at the federal level. However, there is a three-year lookback rule for lifetime gifts, which means you can’t just gift all your assets on your deathbed because these assets would be treated as if you still owned them. You should also know that gifted assets maintain their cost basis and do not receive the “step-up” in basis upon death.
For example, if you gift a $400,000 family cabin that you purchased for $100,000 in 1990, there would be a $300,000 taxable gain when sold. Alternatively, passing this same cabin upon death would qualify it for a step-up in basis, so the receiving party would only have taxable gains upon sale if the value of the property were higher than the value on the day of death ($400,000 in this example).
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The basics of estate planning involve taking steps to create a holistic plan that provides for the distribution of your property and assets
to your heirs after you die. These steps usually include writing a will, naming your beneficiaries, designating an executor for your estate, doing tax-planning and setting up trusts.
One example of estate planning is creating a will that names your beneficiaries and designates someone to be the executor of your estate. A will can also include a guardianship designation if you have younger children. Another example of estate planning is changing your financial accounts to TOD (transfer on death) and retitling property to include your beneficiaries as co-owners. This helps prevent the assets and property from going through probate when you die, which can be time-consuming and expensive for your heirs.
The main purpose of estate planning is to ensure that your final wishes are properly carried out after you die.
The four must-have estate planning documents are: a will, a revocable trust, financial power of attorney and healthcare power of
A death folder should contain all the important documents and information your loved ones need to initiate the administrative
aspects of settling your estate. This should include:
Although specific laws vary from state to state, when a homeowner dies without a will, the state puts the home into probate. In probate, the home is eventually transferred to the deceased person’s closest living relatives. If there are disputes among relatives, the process can be time-consuming and costly. In some cases, the heirs may be forced to sell the property to cover probate expenses and taxes.
We recommend our clients’ review their beneficiaries every few years or when major life events occur, such as marriage, divorce, death in the family, birth or adoption.
The estate planning process is complex. Doing it alone puts you at risk of making errors that could cost you and your family time, money and frustration down the road. To ensure a thorough and well-considered estate plan, its best to work with a qualified professional that can align your estate planning with your overall wealth goals.
360 Financial is we’re here to help with your estate planning and other wealth management needs.
Schedule a free 15-minute call with our experienced team of experts to discuss your financial ambitions.
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Asset allocation, tax planning, and estate planning are three main elements that affect overall financial planning. In this post we’ll cover all three in brief, so you can make sure that you’re ready for your work-optional future!