Aligning Your Estate Plan to Your Values

Written by Prio Wealth Relationship Manager, Robert Devinney, CFP®, ChFC®

What is Estate Planning?

Estate planning is a process that varies from person to person and family to family. It constitutes what happens with your property after you die. Your mortality may sound like an uncomfortable thing to plan for, but having a clear and established estate plan can put your mind at ease.

Truthfully, everyone already has an estate plan. It comes down to one of two options. You either built one because you want to manage what happens to your property, at the end of your life, or you leave those assets according to the probate laws of your home state. Probate is the legal process that determines the distribution of your assets at the end of your life.

Key Documents for your Estate Plan

Ultimately, building an effective estate plan need not be complex or expensive but it should clearly communicate your wants and wishes for the disposition of your property at the end of your life. First and foremost, you should meet with an estate planning attorney. Your attorney will draft necessary documents based on your post-life goals. Below is a list of possible documents and their purpose so that you can identify and discuss with your attorney those that are most prudent for you.

1. Will – This document designates how property is to pass at death. It names an executor to manage the transfer process through probate with costs and taxes apportioned so that the decedent’s wishes can be accurately fulfilled. The will should be reviewed after different key life stages, such as the birth of a child, divorce, or loss of a spouse or with changing financial circumstances and new tax laws.
2. Trust – More elaborate than a will, a trust is an instrument used to house assets managed by a trustee(s) for the benefit of your named beneficiaries. It can be structured to be in effect during your lifetime or it can begin on the day you pass away. The key to a trust is that it allows you to place assets in a legal entity for the benefit of someone without giving that person control over said assets.
3. Life Insurance – There are different types of life insurance that can be used to either enhance your estate or provide you with estate liquidity. The most appropriate use of life insurance in your estate plan depends upon your age, family circumstances, and financial status.
4. Powers of Attorney – A document that assigns someone who can provide you with flexibility in decision-making regarding health and financial concerns. There are various forms of that this can take, especially when it comes to mental incapacitation.
5. Healthcare Proxy – This is also called a Medical Power of Attorney and allows a person, assigned by you, to make medical decisions on your behalf in case you become incapacitated.
6. Living Will – Different from the will discussed above, a living will allows you to clearly state your wishes if you need to make a life-saving decision. This is especially helpful in reducing some of the emotional burden that might be brought onto your loved ones should they need to make the decision on their own.
7. HIPAA Release – HIPAA is the acronym for the Health Insurance Portability and Accountability Act of 1996 which greatly prohibits what health care professionals can discuss with family members, friends, or anyone who is not the patient. This release allows your health care providers to speak candidly and directly with whomever you designate regarding your medical situation.

Are there any measures I can take on my own?

While meeting with an attorney is certainly the most effective method of building an estate plan, there are measures that you can, and should, take on your own. One of the most important things you can do is ensure that you have named beneficiaries on all your retirement and insurance assets. Your named beneficiary can be anyone – your spouse, children, siblings, friends, a charity etc. You can also name multiple beneficiaries and earmark a specific percentage of your property that you would like each person to receive. Having beneficiaries ensures that your assets bypass probate and thus are transferred according to your wishes without excess hassle. When it comes to non-retirement and some non-qualified assets, you can still name beneficiaries but in this case the designation is called “transfer-on-death” (TOD) or “payable-on-death” (POD).

Additionally, you can review the titling of your assets. If you co-own any assets with any individual, you should ensure that they are titled jointly. Joint titling means that in the event of yours or your co-owners passing, the assets can then be transferred to the joint owner instead of having to go through probate. There are multiple types of joint titling available, so please consult your Prio Wealth advisor or your estate attorney to determine what makes the most sense for you.

What about gifting or charitable donations?

Gifting plays an important role in the estate plan. By making gifts, you are not only providing for someone less fortunate than you, but you are also reducing the size of your estate and thus reducing your transfer tax liability at the end of your life.

In estate planning, charitable giving is treated differently than traditional gifting. Where gifts to friends and family can reduce your overall estate, gifts to qualifying charities can be deductible for income, gift, and estate tax purposes.

How do I plan for taxes?

One of those most important considerations in the estate planning process is taxes. There are multiple different types of taxation that, if they are not planned for, can hurt the legacy you wish to provide your heirs. Typically, there are four types of taxes that affect estates: estate, gift, generation-skipping, and income.

In 2017, the Tax Cuts and Jobs Act increased their exemption amount from $5.49 million to $11.18 million ($12.06 million in 2022). Under the current law, estate taxes typically only apply to ~1% of all estates. That being the case, the federal estate tax is an ever-debated topic in Congress, and it is possible that it will apply to more estates in the future. Those estates that must pay federal estate taxes pay an extremely high 40% tax rate. The generation-skipping tax is an additional tax created to prevent families from avoiding transfer taxes by having their gifts skip one or more generations.

There are a multitude of ways to prepare your estate to pay these taxes. You can draw up various trusts, purchase life insurance, and/or donate assets during your lifetime. It is important to consult an estate attorney to determine what estate planning vehicles align most with your values.

At Prio Wealth, it is our goal to help our clients build a comprehensive financial plan that not only covers their life’s priorities but also their legacy’s. Please contact your dedicated advisor to discuss how we can help you gain confidence in your estate plan.