When a person passes away without updated estate planning documents in place, it is possible not all of their wishes will be met and your beneficiaries may not receive everything they are entitled to, or exactly how you would prefer.
You can start to lay the groundwork in your financial plan to consider the legacy you want for your children, your grandchildren or a charity for years to come. This legacy can extend beyond a simple financial inheritance. If properly designed, it can be a part of a rich tapestry supporting the values you instilled in your family. The actions you take today for your financial plan will have an impact long after you are gone.
A will is a legal document drafted in accordance with state laws wherein the estate beneficiaries are named. A will is subject to probate which means that all assets are distributed under the supervision of the court. An executor is named in the will and is responsible for ensuring that the provisions of the will are followed. Absent a will, the state becomes the executor of the estate and will name guardians and beneficiaries according to its laws.
A trust is a form of ownership that is set up by the estate owner to receive and hold title of the assets prior to their distribution to the heirs. A trustee is designated to manage the trust in accordance with its provisions. There are several different kinds of trusts, each designed to serve a specific purpose such as to avoid probate, minimize estate taxes, or manage the assets of the estate.
Stretch IRA Language
Without Stretch IRA language in your trust documents, your heirs could receive your qualified retirement monies (such as 401(k)’s, IRA’s, etc.) in a lump sum. Typically a lump sum distribution significantly increases the heirs tax bracket, meaning a larger percentage of their inheritance goes to taxes. A “Stretch IRA” typically spreads out the distributions over five years, or the rest of their lives, which can potentially help limit the taxable consequences of the inheritance.
There are several ways to title assets that will result in different methods of asset transfer. A common form of asset title is Joint Tenancy which allows the asset to transfer, automatically and without probate, to the person named jointly in the title.
Assets such as life insurance and qualified retirement plans transfer by contract to named beneficiaries outside of probate.
Estate Planning Guidance
In many cases, a simple will can suffice as a way to ensure the desired transfer of assets and guardianship of children. Estates of a larger size or that contain illiquid assets such as real estate, may require the guidance of a qualified attorney to structure the most appropriate planning arrangement. An estate planning attorney can also arrange your estate in a way that can eliminate any potential friction among heirs. If the estate is of a significant size that might subject it to estate taxes, then an attorney can suggest arrangements that will minimize them.
* Estate tax laws change periodically as do the individual’s financial situation which can make an estate plan obsolete if it is not reviewed periodically. A good estate planning team can provide the necessary guidance to ensure that your estate plan is current and operable.
Michael C. Taylor is a senior attorney at the law firm of Kirk, Huth, Lange, & Badalamenti, PLC specializing in estate planning and probate law, commercial litigation, and business planning. He also has expertise in real property taxation matters and represents commercial property owners in assessment appeals before the Michigan Tax Tribunal. Mike received his law degree from Wayne State University Law School and earned a bachelors degree in economics from Kalamazoo College.
Mike resides in Sterling Heights with his wife and three children. In 2015, he was elected mayor of the City of Sterling Heights and is currently the youngest big city mayor in the United States.
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Phone: (586) 412-4900
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