Estate Planning Essentials
Here’s what to know when creating–or updating–your estate plan
When it comes to financial decision-making, it can be easy to bookmark estate planning as something to tackle later on in life. The reality is, estate planning is critical to consider now, while preparing for the future. At its core, estate planning is about ensuring that you can leave your financial legacy to whom you want, when and how you want to.
Below is guide for those just getting started with estate planning, as well as considerations for those who have a plan in place to review before this year is over.
Creating a plan? Here’s how to get started
An estate plan typically includes the following: a will or trust; beneficiary designation forms; durable powers of attorney for financial and health care; a living will; and a letter of intent. As you consider next steps for each of these items, you’ll want to work with the appropriate experts (attorney, financial advisor, CPA) to make the decisions that best align with your values and personal and financial goals.
A primary goal of estate planning is to protect your assets, loved ones and charitable legacy. To ensure your wishes are followed in the event of your death or illness, it’s important to thoroughly document your requests. This includes:
- Detailing provisions for any dependents (guardians, special care, distribution of assets)
- Ensuring the titles of material assets (cars, property) are named properly
- Designating beneficiaries for your life insurance policies, retirement accounts and other assets.
You’ll also want to ensure you have the following: an updated will disposing of your assets, a living will that reflects your end-of-life wishes and powers of attorney designated for both healthcare and financial matters.
In addition to protecting your assets, consider whether you’re looking to create a legacy of giving after you’re gone. If so, you can plan to include your favorite charity in your will or trust. You could even add them as a beneficiary to a life insurance policy or retirement account.
Have a plan in place? Here’s what to prepare before year-end
For those who already have an estate plan in place, it’s important to be aware of – and prepare for – upcoming changes that could be on the horizon with the new political administration. Keep the following in mind as you continue to plan through the end of the year.
Estate tax exemptions: With the change in administration, estate and gift tax exemptions could be reduced. Yet this year, you’ll want to take advantage of your estate and gift tax exemptions to the fullest, given the possibility they could decline. One tool to look into here is the Spousal Lifetime Access Trust (SLAT). This will allow you to use your gift tax exemption, while simultaneously creating a trust for your spouse and any children or grandchildren.
Tax diversification strategy: Create a plan for next year in anticipation of potential changes in tax rates and legislation. This includes bracket management as well as gain and loss harvesting, which you should plan to assess with your financial advisor or CPA. This review will help inform important decisions you can make, including whether Roth conversions or other strategies are right for you to mitigate the possible impact of new policies on your retirement planning.
Deduction timing: While the previous recommendation was to accelerate deductions and defer income, the new rule is about timing deductions. You’ll want to consider timing related to deducting medical expenses, property taxes, charitable contributions and any casualty or theft-related losses.
Donor-advised funds: On the charitable side, consider taking owned stocks and putting them into donor-advised funds (managed by a community foundation or third-party administrator). Over time, you can distribute these funds to the charities you’ve identified as important to you. With this decision, you receive a deduction when you put property into the donor-advised fund subject to income limits, versus when you make the gift to charity. This will allow you to more strategically time your charitable gifts.
Regardless of where you’re at in the estate planning process, now is an important time to evaluate the decisions that best fit your lifestyle and goals. Up-to-date estate decisions as part of a comprehensive financial plan will help to better prepare you and your family for the impact of any unexpected events, and empower you to approach your financial decisions with greater confidence moving forward.
Scott G Sparks uses Sparks Financial as a marketing name for doing business as representatives of Northwestern Mutual. Sparks Financial is not a registered investment adviser, broker-dealer, insurance agency or federal savings bank. Northwestern Mutual is the marketing name for The Northwestern Mutual Life insurance Company, Milwaukee, WI (NM) and its subsidiaries. Scott Sparks provides investment advisory services as an Advisor of Northwestern Mutual Wealth Management Company, Milwaukee, WI, a subsidiary of NM and federal savings bank. Scott Sparks provides investment brokerage services as a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS), a subsidiary of NM, registered investment adviser, broker-dealer, and member FINRA and SIPC. Scott Sparks is an Insurance Agent of NM. CA License 0C96547