WHAT DO “CRASH DIETS" & ESTATE PLANNING HAVE IN COMMON?
Ever meet a couple that waited 30 days before their wedding to lose weight? Did they try a juice cleanse or a 1,000+ calorie deficit diet.?
I’m sure you told them…that will help you lose weight but it’s NOT sustainable….but for the wedding day, it helped them look better!
HOW DOES THIS CRASH DIETS APPLY TO FINANCIAL PLANNING??
A similar concept applies to Estate Planning (“Death Planning”). When it comes to estate planning, many think it is to avoid Federal Estate Taxes. However, most people will not owe Federal Estate Taxes ...unless Net Worth exceeds = $11 Million/person as of 2019.
2 SIDE NOTES:
There is also a “Gift Tax” for giving things away while alive that could cause a tax. (will discuss in future post)
States have their own Inheritance/Death tax rules, so check your state as you might owe them money at death.
So back to our hypothetical example... we are estimating that you will owe your State $0 & Uncle Sam $0…Why do I need to do an Estate Plan/Death Plan?
The reason that the majority of Americans need to plan their Estate is not to avoid taxes but to avoid court/probate & legal fees at death. Probate is the legal process where the state court distributes your properties to heirs.
LET ME EXPLAIN FURTHER…
If you pass away without a Will (legal document saying how YOU want your assets to pass to heirs), each State has rules that determine who gets your assets. Let’s say your State’s rules are that the assets go to your kids…That's what you want...so now I’m done, right?
NOT YET...
That court process can be expensive due to hiring a lawyer to navigate the process. More importantly, that court process can takes months or over a year until your beneficiaries receive your assets (each state is different).
HERE IS A TEMPORARY SOLUTION:
“TOD” OR “TRANSFER ON DEATH”
A “TOD” adds beneficiaries to your bank accounts or investment accounts. At death, the money will flow to your heirs outside of the court system, much the same way that life insurance (and 401K/IRA) does.
(IMPORTANT NOTE: Like the a crash diet, this is just a short term solution! This will NOT help you with your real estate, your jewelry, etc. Those need to be properly designated in a FULL Estate Plan.)
Doing an Estate Plan can feel expensive, as lawyers that are good at what they do will charge you accordingly. However, it typically costs far less to hire that lawyer to build you an estate plan…compared to your family hiring that lawyer to usher your all your assets through the lengthy Court process.
ACTION STEPS TO PROTECT YOUR FAMILY:
Call your bank and ask about the procedure to add a TOD or POD (“Paid On Death”) to your bank accounts
Call your Financial Advisor and ask about the procedure to add a TOD to Individual Accounts (Joint Accounts already have a beneficiary, they pass to the joint owner)
Lastly, if you are ready to take action on your Full Estate Plan and you want to have a conversation about mapping out the way it can work…Schedule a meeting with me.
Let your lawyer do what they do best, legal paperwork. The time you spend with a financial planner to educate you on the process and mapping different scenarios is time saved in front of the lawyer (and their hourly rate). Once we have the plan mapped out, your lawyer can review our homework and make it legally binding in your state.
Best
Pat
(DISCLAIMER: I am not a lawyer and this is NOT legal advice. A licensed attorney in your state must provide and bind the paperwork for your estate plan.)