Non-Tax Reasons for Having an Estate Plan

Under current federal law, a person may pass everything he or she owns to a surviving spouse without paying any federal estate, gift, or generation-skipping taxes. In addition, a person may pass up to a certain amount ($11.7 million for singles and $23.4 million for married couples) to anyone other than his or her surviving spouse without paying any federal transfer taxes.

Estate planning is essential to provide peace of mind. It is a powerful tool to accomplish your goals and help protect your assets for family members and your legacy. Whether you have tens of millions to protect or a more modest estate, estate planning is critical.

Without an estate plan, specifically a will, the laws in your state will determine what happens to your possessions, and the courts will decide who gets custody of your children.

Under current federal tax law, a person may pass everything they own to a surviving spouse without paying any federal estate tax or federal gift tax. In addition, a person may pass up to a certain amount ($12.92 million for singles and $25.84 million for married couples in 2023) to anyone other than their surviving spouse without paying federal transfer taxes. The taxable estate must not exceed the limit for the tax exemption. Otherwise, the IRS will impose a transfer tax and require a tax return for the tax liability.

Individuals whose estates fall below the federal exemption threshold may think they don't need an estate plan because they won't have federal tax liability. However, there are numerous non-tax reasons for having an estate plan.

Control Distributions of Your Assets

Estate planning lets you control the distribution of your assets after death. It ensures your wishes are fulfilled. You can use a plan to create family harmony, not conflict. Without an estate plan, no matter what your net worth is, your probate estate will be distributed according to your state's intestacy laws.

Estate planning also helps your loved ones deal with your estate with minimal conflict. A well-crafted estate plan can help prevent family disputes. You can control the distribution of your assets when you create an effective strategy.

Maintain Privacy With Your Financial Affairs

Estate planning can help you keep your affairs private and out of the public eye. If you engage in estate planning, you can employ strategies to transfer assets without going to probate court. When you open a matter, the probate process is a matter of public record.

For example, when you transfer assets through most types of trusts, you can maintain privacy. With a trust, the matter is private. This is the case whether you transfer assets to an irrevocable trust, a revocable living trust, or a special needs trust. The same is true for beneficiary designations.

For some assets, you can name beneficiaries other than the estate for property, such as:

  • Life insurance policies
  • Retirement plans
  • Bank accounts (payable on death)
  • Stocks and securities

An estate plan allows you to pass assets to your loved ones while maintaining privacy. You can employ estate planning strategies to transfer assets to loved ones while keeping your financial affairs private.

Asset Protection

Tax planning is not the only reason to engage in estate planning to protect your assets. With careful estate planning, can protect your assets from:

  • Creditors
  • Lawsuits
  • Other potential threats

Adding asset protection as part of your estate planning process is another way to control what happens to your assets after you pass away. An estate planning attorney can guide you in asset protection strategies that will help you minimize loss to the value of your estate when you pass away.

Business Succession Planning

Estate planning can help ensure the smooth transfer of ownership and management of a business to the next generation or chosen successor. There are many tools business owners can use to transfer their business.

Selecting the right one will depend on the circumstances. For example, planning will differ when a business owner plans to retire versus planning for business succession after a death. Whether you own a family business or any other business, business succession planning can be one of the most critical decisions a business owner will make.

Planning for Incapacity and Special Needs

Estate planning can include provisions for what will happen if you become incapacitated. You can execute documents to set up your loved ones to ensure that your financial and healthcare decisions are made according to your wishes. These documents can include:

You can also use estate planning to help plan for those with special needs. You can help provide long-term care and support for a loved one with special needs. You can ensure their needs are met even after your passing.

Estate Planning Strategies to Consider

The following estate planning tools may benefit you even with a modest estate.

Preparing a Will

If you die intestate (without a will), state law will determine who receives your assets. State law also determines how much each person receives of a decedent's estate when there is no will. Even if you do not have significant assets, state law can cause results you probably would not have intended.

Take, for example, the North Carolina Intestate Succession Act. If you have a wife and a child and die intestate, not everything will pass to your surviving spouse. Depending on how the assets are titled between you and your wife, your child will also be entitled to a share of your real estate and personal property.

This result may be different from what you would have desired. If the child surviving you is a minor (under 18 in North Carolina), the result can be even more complicated. In such cases, the court must appoint a guardian to manage the assets received by the child. Our state-specific last will and testament forms can help you get started.

Appointing a Guardian

Most couples with young children are concerned about what will happen to their minor children if both parents die. A will is one of the best ways to protect your children. A will allows you to appoint during life who you want to care for your children upon your death.

Two kinds of guardians can be appointed:

  • Guardian of the person
  • Guardian of the estate

Your child's guardian would be responsible for deciding the following:

  • Where your child would live
  • Where the child would go to school
  • The child's religious upbringing
  • Other personal matters

The guardian of your child's estate would manage any assets passed on to the child.

Creating a Trust

An effective way to provide for your children is to create a trust. A grantor can place assets in a trust managed by a trustee to benefit the beneficiaries. A trustee can hold trust assets for your children until they reach a certain age.

Your will could direct your executor to distribute any assets passed to a child under 25 (or any age you choose) to a trustee. The trustee holds the trust assets pursuant to the terms of the trust. A trust is a flexible and effective way of providing for a child's most important needs like education and health care. Your trustee could have sufficient assets to invest for your children's future needs upon your death.

An Attorney Can Help

Before concluding that you might not need an estate plan, know there is more to it than taxes. An estate planning attorney can provide valuable legal advice regarding the best estate plan for you. The governing law varies from state to state. If you do not feel confident handling planning alone, seeking legal advice from a local estate planning attorney is best.

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