You’ve worked long and hard for the day when you would retire. You have avoided risky stocks and generally been conscientious about saving money. The good news is that you have saved enough to live comfortably and are at the point where it’s time to figure out how you want to structure your estate planning.
The 2017 federal estate tax exemption threshold is $5.49 million, which means an individual’s assets below this amount can be gifted tax free, but are taxed 40 percent if above this level. The threshold is adjusted yearly and is also subject to major changes with a new presidential administration. But even for estates worth less than this threshold, the smart move is to sit down with an attorney with experience in this area to figure out what will work best for your family.
Before that, however, you may want to think about your options. Here are the basic elements to consider even before you meet with an attorney. This will give a general idea of how it works.
A will is a written document that outlines how property and other assets will be distributed after your death. It can and should be updated whenever there are major changes in your life – a marriage, children, second marriage, etc. It’s low impact but can be quite specific.
A Living Trust
Trusts are a great way to leave assets to loved ones without having the expense and inconvenience of probate (a special court that distributes property after death). Probate can be particularly onerous if the estate is larger and more complex. Living trusts also avoids the limitations of certain guidelines that apply to passing along life insurance policies, adding beneficiaries to your retirement accounts and gifting assets before death.
There are, however, some drawbacks to creating a living trust. These take longer to create and require ongoing maintenance and funding – a living trust only controls those assets that have been placed in it. It’s also harder to amend or alter.
A Matter of Timing
Timing could be an issue for picking one over the other. For an example, a will may work best for a family that is younger and still growing, while a living trust would likely be better once folks are nearing or at retirement age and there will not be major fiscal changes in the years to come.
Whatever the decision, a lawyer can be most useful in the process. Find one that fits the bill for you and your family’s needs. Getting “your affairs in order” also means a lot less stress for those who are left behind. You’ve always kept your affairs in order, so you might as well continue do so up until your death.