Oftentimes in life we put off the things we don’t want to do or that bring us sadness. It happens with mundane chores, as well as larger life decisions, like estate planning. Estate planning often ends up on the bottom of our to-do list. Maybe they don’t want to admit to themselves that they’re going to die or to make decisions about who gets what or who’s going to be in charge. This is understandable since it’s a heavy, and often a scary topic. But honestly, that’s a little selfish when you stop to consider the burden this places on your spouse, siblings, parents, or friends. Will they be able to step in to help? Or know anyone who will know what to do? When it comes down to it, people spend more time selecting the toppings to order on a pizza or thinking about what color to paint their walls than actually sitting down and planning for their estate. Many who have spent the time to establish a simple will may find that it’s not adequate to preserve the wealth they have built during their lives or to protect their loved ones in the event of sudden death. You may assume that your spouse can handle it all, but what if you’re in an accident and your spouse is with you? It may not be enough just to rely on a will.
It’s no secret that wealth that is passed on after death is heavily taxed, and that many people want to try to avoid those taxes as much as possible. They also wish to have some control. One way to accomplish both of these goals is to establish trusts. Trusts may allow you take advantage of possible tax exemptions from the government while still allowing your wealth to continue to grow outside of your estate, essentially avoiding many estate taxes. In order to accomplish those aims, you might consider establishing trusts. This may allow you to take advantage of the exemptions the government gives to you and allow that wealth to continue to grow outside of your estate, avoiding estate taxes.
Once you decide to establish trusts, there are different varieties to explore and research. One type to consider is called a spousal lifetime access trust (SLAT), which allows you to put the federal exemption amount for you and your spouse into a trust. This allows that money to grow free of estate tax, out of your estate and to future generations. Another great feature of these trusts is that both spouses may access the funds during their lifetimes if it becomes necessary.
A grantor retained annuity trust (GRAT) is another trust to consider. This trust allows you to put assets in now and to receive income from these assets for a certain period as an annual payment from the trust. Then, when you pass, any assets remaining will be turned over to your beneficiary—usually a close family member—as a gift.
It is not a pleasant conversation or topic, but it is important to do your research and determine which path is best for your situation. Knowing which best serves your needs is most soundly decided by working with a very knowledgeable wealth advisor or estate-planning attorney. Also, some words of advice: don’t be in a hurry to give away your estate. You want to take care of your family and loved ones, but it’s important to make sure you have assets that generate the cash flow you need for your lifetime.
For more information about planning for your estate, visit www.tswealth.com.