Estate Planning: Know Your Worth
Estate planning is an oft-overlooked, but no less important part of your overall financial plan. Although the primary goal is to protect your assets postmortem, there are also tax advantages you can use to minimize the amount of assets you use to pay taxes now, and in the future.
One of the most common misconceptions when it comes to estate planning, is it’s only necessary for large estates. Granted, unless the value of your estate exceeds $12.06 million for Federal purposes (though this is scheduled to revert back to $5.49 million in 2026), and $6.11 million for the State of New York, it’s exempt from estate taxes. But taxes are just the tip of the iceberg.
Make Sense of the Dollars and Cents
Knowing not only the components of your estate, but their values is crucial when you’re:
- Drawing up a will, and allocating assets amongst your heirs
- Determining how much life insurance to buy
First, you’ll want to make a list of all of your intangible assets, as these tend to be more valuable
- Bank accounts (checking, savings, CD’s)
- Brokerage accounts (stocks, bonds, mutual funds)
- Life insurance policies
- Retirement plans (IRA, 401(k), pension)
- Ownership interest in any businesses
Second, you’ll want to make a list of your tangible assets: Homes, land, and real estate
- Household goods including electronics, furniture, power tools, and equipment
You can either estimate the value of these items based on:
- Recent appraisals or comps, or
- How you expect your heirs to value them
HKMP is here to help. We can ensure tangible assets are valued accurately, taking current market trends and fluctuations into consideration.
Make sure you include a list of account numbers, contact numbers for the custodians, and the location of relevant documents for all intangible assets. You can utilize bank and brokerage statements, or current financial statements where applicable to determine their current value.
The Pluses and Minuses Matter
Third, create a list of your creditors, and the current amount of debt with each one, even if it’s zero. Like your intangible assets, these things tend to ebb and flow over time:
- Credit cards
Again, list all account numbers, contact numbers for whoever holds the debt, and where the statements, contracts, credit cards, or check books are located.
Knowing the value of your estate can provide the information you need to purchase adequate life insurance sufficient to relieve your heirs of any debt attached to your assets, and ensures your will is as complete as possible.
Make Important Decisions Sooner Rather Than Later
This is also the time to make certain important decisions:
- Assign an Estate Administrator
- Give medical power of attorney to a trusted individual in the event you’re unable to speak for yourself
- Assign durable financial power of attorney allowing someone to manage your financial affairs if you’re medically unable to do so. This can include paying bills and taxes, as well as allowing your designee to manage and access your assets.
- Determine whether or not you want to create either a Revocable or Irrevocable Living Trust.
- Identify your beneficiaries (or in some cases, identify exclusions)
- Who gets what?
- Who are your contingent beneficiaries?
- Manage designees on accounts such as retirement, insurance, bank, and brokerage
- Update as circumstances change
Give Your Estate Plan Regular Check-Ups
While there are many low-cost, DIY options available for both managing your estate, and drafting wills and trusts, it’s up to you to determine whether or not it’s in your best interests, and those of your heirs to incur the cost of an attorney and certified public accountant to ensure your assets and heirs are protected, and your wishes are properly documented. Factors affecting your decision may include:
- The size of your estate
- Whether your wishes and allocations are simple or complicated
- If you have concerns for the care of minor children
- The size, number, and complexity of business interests
- If you have non-familial heirs
Above all, revisit your estate plan periodically. The one thing you can count on in life is change, and more often than not, changes impact your estate, not only in value, but in how you want it allocated, and whether you need to revise your will.
Certain changes should, by nature and impact, trigger a reassessment:
- Change of circumstances (job change, marriage, divorce, economic fluctuations)
- Change of beneficiaries (birth, death, marriage, divorce)
- Changes in State or Federal laws
With upcoming changes in tax laws affecting estates, let HKMP give your Estate Plan a financial check-up to determine whether there’s a potential favorable, or unfavorable impact from new laws and limitations.