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5 Estate Planning Steps to Take Now
Greg Lavelle • October 23, 2020
If you haven’t already put together an estate plan, there is no time like the present. While deciding what to do with assets after your death can be an uncomfortable topic for many, it can be equally uncomfortable to envision your estate tied up in probate court for months or years. If you want your loved ones to inherit assets smoothly, without a lot of legal hassle and tax risk, an estate plan is an essential part of your overall long-term financial plans.
Draft a will.
Yes, everyone needs a will - even those without a significant amount of money. Leaving directions regarding your final wishes can remove a lot of burden from family members at a difficult time.
Name appropriate beneficiaries.
Contrary to popular belief, a will does not provide the final say regarding some assets. Life insurance policies, retirement funds, and some other assets will be distributed to the beneficiary named on the account. If you don’t name a beneficiary, these assets will have to pass through probate court and a judge will decide their ultimate fate.
Remember to review and update beneficiaries regularly, especially after major life events like a birth, death, or divorce. Naming a back-up beneficiary is a good idea, too.
Consider a trust.
Assets placed in a trust are not subject to probate court, meaning you can pass them directly to heirs without any legal hassles. For those concerned about protecting the privacy of their heirs, you might be relieved to know that assets within the trust are not subject to public record.
Several different types of trusts exist, each with different limitations and serving unique purposes. Work with an estate planning attorney to determine the right type of trust for your situation.
Pass some assets now.
If you already know you want to leave money to certain family members, friends, or even charities, you don’t have to wait. For those with larger estates, who prefer to avoid inheritance taxes, gifting assets during your lifetime can help to accomplish that goal. Currently, you can gift up to $15,000 per person, per year, free of taxes (the recipient won’t owe taxes either).
If you choose to donate money to charities, those gifts can be tax deductible. Make sure you have chosen IRS-approved organizations.
Investigate Roth conversions.
Since distributions from traditional retirement accounts can be taxed as regular income each year, you might wish to save your beneficiaries from that headache. Converting funds to non-taxable Roth accounts can be one way to accomplish this goal.
Give us a call if you need more information on how to select beneficiaries and protect them from excess taxes. These measures should be taken under the guidance of an experienced financial advisor, who can help you minimize the tax burden on yourself as well.
As a business owner, safeguarding your enterprise against unforeseen events is crucial for long-term success. Life insurance offers several strategies to protect your business, ensure continuity, and provide financial stability during challenging times. Two primary methods are buy-sell agreements and key person insurance. Buy-Sell Agreements A buy-sell agreement is a legally binding contract that outlines the procedure for transferring ownership if an owner departs due to death, disability, or retirement. Funding this agreement with life insurance ensures a smooth transition and financial security for the remaining owners and the departing owner's beneficiaries. Types of Buy-Sell Agreements Cross-Purchase Agreement: Each owner purchases a life insurance policy on the other owners. Upon an owner's death, the surviving owners use the policy proceeds to buy the deceased owner's share. This method is often suitable for businesses with a few owners. Entity Purchase Agreement: The business itself owns life insurance policies on each owner. If an owner passes away, the business uses the proceeds to buy back the deceased owner's share, redistributing it among the remaining owners. This approach is typically preferred for businesses with multiple owners. Key Person Insurance Key person insurance is a policy that a business takes out on essential employees whose loss could significantly impact operations. The business owns the policy, pays the premiums, and is the beneficiary. If a key person dies or becomes disabled, the policy proceeds can be used to: Cover the costs of finding and training a replacement. Offset lost revenue resulting from the key person's absence. Reassure clients, creditors, and investors of the business's stability. This strategy is vital for businesses where certain individuals are integral to success, such as top executives, lead developers, or primary sales personnel. Additional Strategies Beyond buy-sell agreements and key person insurance, consider these life insurance strategies: Collateral Assignment: Use a life insurance policy as collateral for business loans. In the event of the owner's death, the lender is paid from the policy proceeds, preventing financial strain on the business. Executive Bonus Plans: Provide key employees with life insurance policies as part of their compensation package. This not only offers them personal financial protection but also serves as an incentive for retention. Deferred Compensation Plans: Promise to pay key employees a certain amount at retirement, funded through life insurance policies. This ensures the business can meet its obligations without affecting cash flow. Implementing life insurance strategies is essential for business owners aiming to protect their enterprises from unforeseen events. Work with us to explore your life insurance options and we can help your business remain resilient and continue to thrive.
Term life insurance provides coverage for a specified period, such as 10, 20, or 30 years. If you outlive your term policy, the coverage ends, and no death benefit is paid to your beneficiaries. As you approach the end of your term, it's essential to evaluate your current financial situation and consider options to maintain life insurance coverage if needed. Options to Consider Annual Renewable Term: Some term policies offer an option to renew annually after the initial term expires. While this allows you to extend coverage without a medical exam, premiums typically increase each year based on your age, making it a potentially costly option over time. PROGRESSIVE.COM Policy Conversion: Term-to-Permanent Conversion: Many term policies include a conversion feature, allowing you to convert your term policy into a permanent life insurance policy, such as whole or universal life, without undergoing a medical examination. This option can provide lifelong coverage and build cash value, but premiums will be higher than those of the original term policy. NEWYORKLIFE.COM Purchasing a New Policy New Term Policy: Applying for a new term life insurance policy can be an option, especially if you're still in good health. However, premiums will be higher due to increased age, and you may need to undergo a medical exam. Permanent Life Insurance: Alternatively, you might consider purchasing a permanent life insurance policy, which provides lifelong coverage and accumulates cash value. This option is generally more expensive but offers additional benefits. Exploring Alternative Coverage: Final Expense Insurance: Designed to cover end-of-life expenses, such as funeral costs and medical bills, final expense insurance offers a smaller death benefit with more affordable premiums and may not require a medical exam. Guaranteed Universal Life Insurance: This type of policy provides coverage for a specified age (e.g., up to age 90 or 100) with lower premiums compared to whole life insurance, focusing primarily on the death benefit without significant cash value accumulation. Take Action Now As your term life insurance policy nears its expiration, assess your current financial needs and health status to determine the most suitable course of action. Consulting with an insurance professional can help you navigate your options and select the best solution to ensure continued financial protection for your loved ones.
