Creating a will and estate plan provides peace of mind by ensuring your wishes for your assets will be carried out after you’re gone, but it’s also critical since it minimizes the burden placed on loved ones during a difficult transition. However, despite 70% of Americans believing estate planning is at least “somewhat important,” only 26% actually have a will or estate plan in place.
”Only 26% of Americans actually have a will or estate plan in place
Procrastinating when it comes to getting it done is common. While the subject can be difficult and uncomfortable, failing to plan can lead to devastating consequences. From financial loss to family conflict, the risks can become even greater as time passes.
Here are four reasons why you should create an estate plan sooner rather than later, along with some tools to help you reach your planning goals:
1. Protect your wealth and legacy.
By taking proactive steps now, it is possible to protect assets and minimize potential estate tax liabilities. To accomplish this, families should consult with their estate planning attorney and trusted advisors to consider various estate planning techniques. Trusts are among the best tools for reducing estate taxes, protecting assets, supporting philanthropic causes and leaving a legacy that reflects your values.
High net worth individuals (HNWIs) should also be prepared for the potential Tax Cuts and Jobs Act (TCJA) expiration at the end of 2025. With this deadline looming unless Congress acts to extend or adjust the law, those with estates over $7 million (estimated exemption amount after being adjusted for inflation) must execute additional estate planning options to leverage the current benefits under the historically high TCJA exemption limits. This could include lifetime gifting, irrevocable trusts, Family Limited Partnerships, Limited Liability Companies, Grantor Retained Annuity Trusts or charitable planning.
2. Manage the estate and probate process more efficiently.
Wills are visible to the public via court records, whereas trusts generally are not. For that reason alone, most HNWI’s choose to include trusts as part of their estate plans, especially for the post-death distribution of their assets. It’s important, too, that the will and trust documents work together as part of a complete plan – the will should name a competent executor who can also be the same entity as the corporate trustee in order to streamline the process of probate, which is the legal process of activating the will with the court.
One of the most effective ways to protect your loved ones from this emotionally trying time is by establishing a revocable living trust during your lifetime. This can help manage the estate administration process by permitting your successor trustee to step in after your death to administer the assets rather than waiting for your executor to be appointed by the court. Revocable trusts permit grantors to retain control over assets during their lifetimes and upon their passing, the assets to be easily transferred to beneficiaries according to the terms of the trust. It’s a straightforward arrangement that saves time and legal fees.
3. Ensure your wishes are honored.
Left without a plan in place for distributing your personal property, your loved ones will face overwhelming decisions and challenges on top of grief. A well-crafted estate plan details your personal wishes for how your estate should be administered. It is important that your legal documents include complete instructions for distributing your property, too. While legal language can seem impersonal, including a Letter of Wishes can preserve family harmony and prevent disputes during an emotionally charged time – and gives you the opportunity to share more details with your family and perhaps the reasoning behind decisions should you wish to detail those. Or the letter can be just for your trustee’s eyes.
A Letter of Wishes is an informal document that can accompany your trust document to provide your chosen trustee with an understanding of your specific directions and intentions. It is not legally binding but provides insight and guidance from the heart of the grantor. It may also be called a “side” letter or memorandum of wishes. In taking the time to write such a letter, a grantor will add tremendous substance to his or her estate planning file. It’s important to tell your attorney about this and seek guidance – the letter should not change any details of your will or trust document.
Trusts are written to achieve desired legal and tax outcomes. As a result, the heartfelt intent of the grantor may be difficult to determine. In contrast to the language of the trust document, a Letter of Wishes may include anything the trust maker believes will assist the trustee in making decisions in the future.
4. Plan for the unexpected.
One of the most important reasons to create an estate plan sooner rather than later is the unpredictable nature of life. Accidents, illnesses and other unexpected events can strike at any time, and incapacity or health conditions may leave you unable to manage your own affairs. Take steps to ensure your assets will be managed according to your wishes, even if you’re unable to make decisions for yourself, and make sure your Trustee, Executor and those closest to you are aware of your plan.
One method of framing this conversation is by introducing a “Family Fire Drill Exercise” to confirm interested parties know how to access documents and set in motion important estate procedures. After gathering the family together (hint: at a low-stress time), pose the following questions: What would we do if a parent/grandparent was in the hospital? What would we do if a parent/grandparent was incapacitated? What would we do if a parent/grandparent died unexpectedly? To get the most out of this exercise, consider tailoring these questions to the unique situations your family may encounter.
The key to a successful estate plan is beginning the process early and revisiting your plan often. Life is full of surprises and delaying estate planning can create family conflicts and place your wealth and legacy at risk. Once you’ve established your estate plan, revisit it annually. The New Year is a great time to review and update your plan with your trusted team of advisors.
Visit pendletonsquaretrust.com to understand the benefits of an independent trustee and executor, and how those roles fit into your plan. On our website, you will also find insights and our annual estate planning checklist. We look forward to hearing from you.
