Spotlights

Getting Started With Estate Planning

By Veronica Van Nest, JD | 10 Min Read Time

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Introduction

Estate planning can be overwhelming. It involves complex topics and decisions that cause many people to put it off altogether.

As overwhelming as it may seem, your estate plan is a crucial element of your overall financial plan regardless of your age or stage in life.

If you haven't yet created an estate plan, or if you are wondering if you need to revisit it, you're in the right place.

Below, we will walk you through the basics of estate planning and provide resources that can help you develop your financial plan, including our popular guide to estate planning.

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Section 01

What is Estate Planning?

Commonly known as legacy planning, family wealth planning, or succession planning, estate planning is preparing for how you’d like your assets managed and distributed after death.

Many people equate estate planning with the creation of a Will. While a Will is certainly an important tool, the two are not synonymous. The need for various estate planning tools will change depending on your age and goals.

An estate plan should accomplish two overall goals and allow you to define:

  • How will your assets flow
  • Which individual(s) will assist with your personal and financial affairs

Section 02

Why is Estate Planning Important?

Estate planning is an important way to ensure that your assets pass as intended, and it is essential to reducing administrative and tax costs at death (12). Most importantly, it limits the financial and emotional burden placed on your family.

History is filled with famous celebrity examples of estate planning mistakes. Despite these high-profile cautionary tales, estate planning is not just for the wealthy.

While the tools and strategies may vary, some level of estate planning is appropriate for most people, no matter their age or asset level.

Trust vs. Will
What’s the Difference?

What’s a Will?

It’s common for Trusts and Wills to be confused with one another. A Will, also known as a Last Will and Testament, is a legally enforceable document directing how you want your assets and property to be administered when you pass away. A Will also names an Executor, the person who will administer your assets. (3).

Wills are the most common estate planning tool and have several key uses:

  • Appointing an Executor (4)
  • Naming a guardian (5)
  • Naming a Trustee (6)
  • Making a gift to charity
  • Providing for the creation of Trusts for a spouse or minor children

When creating a Will, it is important to be forthcoming with your attorney to help ensure that your assets are set up to be distributed as you intend.

Important Terms Associated with Wills


Probate asset

Anything that does not have a beneficiary designation or that passes by a operation of law (7)


Non-probate asset

Pass outside of your Will and directly to the individuals (8)


Decedent

A person who has died


Intestacy

The condition of an estate if a person dies without a Will.

What is a Trust?

A Trust is a fiduciary relationship where the Trustor gives another party, the Trustee, the right to the Trustor’s property or assets for the benefit of the beneficiary, who may be the Trustor or a third party.

Trusts provide legal protection to make sure the Trustor’s assets pass as they wish to the designated beneficiaries.

Trusts can be used to lay out how a person’s money should be managed and distributed while they are alive, or after they have passed. In some cases, you may want to consider creating trusts for minors or spouses who you do not want to have direct access to your estate assets. This may be applicable for someone with a mental illness or substance issue.

For a Trust to work, it is important to retitle assets, not just create the documents (9). Your attorney will assist you in doing that.


Additional Ways to Pass on Assets

There are other ways assets can be transferred to beneficiaries aside from Wills and Trusts.

  • Beneficiary Designation (Transfer on Death Agreements): Allows you to name beneficiaries of particular assets (e.g. IRAs and investment accounts)
  • Joint Tenants with Right of Survivorship (JTWROS): All joint owners have equal ownership and assets are immediately allocated to remaining owners if one dies.

Types of Trusts & Terms You Should Know


Trustee

The person responsible for administering any Trust assets


Revocable Living Trust

A Trust created while living, where the owner (Trustor) can amend the terms or "revoke" it at any time.


Irrevocable Trust

A Trust where the terms cannot be changed. Given the binding nature of the Trust, these are generally seen as being outside of a grantor's estate for tax purposes.


Trusteed IRA

A Trusteed IRA allows individuals to control the designation of beneficiaries of their IRA assets, including providing for how these assets will be distributed to the next generation.


Charitable Trust

Allows for donors to set aside assets for one or more charities.


Special Needs Trust

A specialized Trust allowing the beneficiary with special needs to receive essential needs-based government benefits.

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Section 03

How to Choose an Estate Planning Team

The first step in creating an estate plan is to choose experts that you trust.

This area of the law can be quite complicated, so it's important to find an attorney who specializes in estate planning.

Using an experienced attorney, instead of taking a DIY approach or using an online service, ensures that your assets pass as you intend (10).

Another key member of your planning team should be an accountant. He or she will understand the potential tax consequences of your estate plan (11).

Because estate planning is about more than just a Will, your financial advisor should be a part of your estate planning team. He or she will ensure your estate plan strategically fits into your overall financial plan.

It is important to be prepared when you sit down with an estate planning professional. In our estate planning guidebook, there's a checklist that can help you prepare for your meeting so that your team can understand your current situation and the goals you have for your estate.


Section 04

Taking Inventory of Your Estate

Before you meet with your selected professionals, think about who in your life should fill each of the important roles within your estate plan.

You will need to assign Power of Attorney, an Executor, a Trustee, and guardians if you have children.

These people will be responsible for fulfilling your wishes. It is important to communicate your goals and the role you’re asking them to play in the execution of your estate plan.

A Power of Attorney (PoA) is a signed document that allows an individual to make certain financial and legal decisions for you (12, 13).

There are three types of Powers of Attorney:

Non-Durable
Often used in business relationships; expires if you should become incapacitated or incompetent
Durable
Most common type used in estate planning; survives incapacity, expires upon death
Springing
Most difficult to administer (requires proof of incapacity); only effective upon incapacity

Once you pass, the Durable Power of Attorney ceases to be effective, and the person you designate in your Will as your Executor will now take care of your affairs.

The Executor has at least four key responsibilities (14):

  • Gather assets when you pass
  • Administer your estate with the court
  • File estate tax returns
  • Ensure your estate is distributed under the terms of your Will

The Executor will handle the distribution of your probate assets.

While an Executor’s role may be over once the estate has settled, the Trustee’s responsibilities could go on for some time. The Trustee is the person responsible for any Trust assets.

A Trustee’s duties may include filing tax returns for the Trust, investing assets in the Trust, and distributing the assets according to your wishes.

A legal guardian is responsible for the physical care, health, education, and welfare of your children until they reach the age of 18.

Tax Planning and the Estate Tax Exemption

Tax implications are key considerations when building your estate plan. Here are a few things you should know about estate tax.

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What are Estate Taxes?

An estate tax is the amount of money an heir pays on their inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. Estate tax generally does not apply to assets passed to a surviving spouse or charity.

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What is the Estate Tax Exemption?

The current federal estate tax exemption sits at $11,400,000 for individuals and twice that amount for couples, up from $5.49 million per person in 2017.

Thanks to a portability clause, even after one spouse dies, an estate of less than $22.8 million would not be taxed when the surviving spouse dies.

There is a 40% maximum tax rate on estates facing estate tax.

In addition to the federal estate tax, some states issue a state specific estate tax. These generally have lower exemption amounts than the federal law, resulting in more people being affected.

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The Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act of 2017 more than doubled the previous estate tax exemption. The exemption will stay at $11.18 million (adjusted for inflation) for individuals until 2025, when it will return to its previous limits.

The estate tax in its current form affects less than 0.1% of all households. Still, for elite individuals with estates in the $5-$11 million range (i.e. those whose exemptions expire after 2025), there is tax planning work to be done.

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Section 05

Creating & Updating an Estate Plan

There are a few common reasons why people delay or altogether avoid estate planning:

  • It forces you to confront your own mortality. Most people just aren’t comfortable with thinking about death, especially their own.
  • It requires you to make difficult decisions that may impact the people closest to you.

While there's always a reason to delay planning, not having an estate plan can prevent you from achieving your goals. Ultimately, it will put unnecessary stress on your family.

The first step in creating an estate plan is assembling your estate planning team, this includes selecting an estate planning attorney. Different attorneys have different price ranges, but you can expect a standard Will to cost anywhere from $700 to $1,500 or more.

Included in our guidebook, is an estate planning checklist to help you prepare for your first meeting with your estate attorney.

Your financial advisor should also be involved as you work through the estate planning process to ensure that all of your financial goals are being met.

Life events, tax, or legal changes can cause your estate plan to become outdated, so it's important to keep your estate plan up-to-date as your life changes.


Section 06

The Role of Estate Planning in Your Total Financial Plan

Creating and maintaining a thoughtful estate plan is the most effective way to transfer wealth to future generations.

It is important to remember, however, that your estate plan is just one piece of your total financial plan.

Today's complex financial markets, new tax laws, and your unique planning needs require that all of your advisors are working in a coordinated way to help you achieve your financial goals.

Keys to a Successful
Wealth Management Plan


Estate Planning


Tax Planning


Asset Protection


Trust & Custody Services


Financial Planning


Investment Management


Our Financial Planning Services

We understand that there are many parts to a successful wealth management plan and our team is here to help. We can help you create your financial plan, and coordinate with your attorney and tax professionals to help you achieve your financial goals, ensuring that your legacy lives on. Learn more about our Family Wealth Management Services.

Additional Resources

To help you with your planning, we regularly host educational webinars and share a variety of articles and resources on all aspects of financial planning. Below are few of our most popular publications:

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Guide to Financial Planning

Our financial planning magazine, Prosper, has something for everyone with articles ranging from preparing for retirement to tax planning and investments.

Download
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Estate Planning Guidebook

Our guide to estate planning offers planning recommendations at a variety of life stages and shares some strategies you and your estate planning team may want to consider.

Download
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Financial Conversations Your Family Should Have

Talking to your family about money is a key part of financial planning, although it can be a difficult topic to address. Our guide shares key topics to cover and tips on how to start these conversations.

Download

Veronica Van Nest, JD Author Photo

About the Author

Veronica is a Senior Wealth Management Consultant for Manning & Napier’s Family Wealth Management Group. Her primary responsibilities are to review and evaluate our clients’ estate plans as well as to provide advice to them on any recommended changes and coordinate those changes with their outside advisors. Prior to joining Manning & Napier, Veronica earned her JD from Valparaiso University School of Law in 1995 and began her career as an attorney in a private practice in Buffalo, NY. There, she specialized in estate planning, estate and trust administration, and elder law.

Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.


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