What comes to mind when you think about the kinds of people who should be estate planning? Let us guess… The ultra-wealthy? The ones who have millions and millions of dollars in trusts, real estate, and investments?
What if we were to tell you that any family can benefit from a clear and detailed estate plan, whether they have $500,000 or $500 million in assets?
This week, we sat down with two of our wealth advisors and CERTIFIED FINANCIAL PLANNING PROFESSIONALS™, Derek Williams and Mike Holloway, to get their perspectives on how estate planning impacts families and legacies— and not always for the better!
Read on to get your biggest estate planning questions answered. And if you don’t see your question here, contact our team!
What is estate planning?
Mike: We describe estate planning as having a pre-existing plan in place for where you want your money to go and how you want it to get there. And it’s not just about money. Estate planning also involves who’ll handle your affairs, who will care for your children if they’re young, and how your resources will be allocated.
When should I make an estate plan?
Mike: There’s a common misconception that your estate plan only “activates” when you pass away. But in reality, you can start acting on parts of your estate plan long before your end of life.
In fact, giving away smaller cash gifts every year is a great way to protect your heirs from significant gift taxes. You can gift as much as $17,000 per person in 2023 without triggering a tax event. That adds up to significant savings for your adult children and gives you the chance to see them enjoy your gift now.
The same concept applies to your charitable giving, too. Rather than giving your preferred charity a large lump sum all at once, with annual giving, you have the opportunity to watch your gift make a meaningful impact.
When you make your estate plan early, and start giving your inheritance years in advance, you can also guide how your recipients see, spend, and think about finances. You know that saying, “Wealth never makes it to the third generation”? It’s unfortunately true! But when you’re around to offer guidance and wisdom along the way, you can help your loved ones become better stewards of those resources, and more successful in the long-run.
Who should be planning their estate? How do I know if I need an estate plan?
Derek: Anyone with assets should have an estate plan sooner, rather than later.
If you have a sizable estate, waiting too late to organize your estate plan will only compound the complexities. That’s because the most effective tools we use to reduce your taxes and maximize your earnings have a limited use window. If you’re already nearing your eighties and have $50 million in assets, we have fewer options than if you’re in your forties with $5 million.
Here’s an example of what I mean:
Say you start a business in your thirties. By the time you’re nearing your eighties, it’s worth $80 million. Congratulations! When you’re ready to pass it on, you transfer as much as you can into a trust. But you hit a wall— you can only transfer $12 million per spouse without paying taxes. So that takes care of $24 million, but you’ve got $26 million left. And when your family inherits it, they’ll be liable for an estate tax of up to 40%! That’s over $10 million in taxes!
Instead, if we set your estate plan up from the beginning, your wealth could grow in a trust— and save your family tens of millions in future taxes.
If my attorney does estate planning, do I also need a financial advisor’s help?
Derek: When you see a regular attorney about creating your estate plan, they don’t typically consider your taxes, the long-term implications of giving your kids and grandkids money, and how your gift might impact your legacy. They understand the legal ramifications of estate planning, but they miss the tax and relational pieces.
At Cook Wealth, we’re known for prioritizing your return on life. We ask a lot of questions as we’re walking you through the planning process because we don’t want you to just sign on the dotted line.
I have a particular empathy for estate planning clients, because I’ve seen both good and bad estate plans play out in my own family. I have firsthand experience with the relief that comes from a clear and well-written estate plan, and I’ve seen the drawbacks, pain, and tension caused by a poor plan. I’ve even seen siblings torn apart by an estate plan that unevenly distributed resources across the adult children. That’s a ruined relationship that could have been avoided by an up-to-date plan.
When we make plan updates, we read every document front to back. We look for spots that are fuzzy or could create a divide, and we help you keep every section current as your situation develops, revisiting your estate plan at least every couple years.
If I have an estate plan already, how often should it be updated?
Mike: Just the other day I had a conversation with the executor of a family estate. She mentioned that her parents’ plans hadn’t been updated in many years, and she was uncomfortable about what might happen if they passed unexpectedly. She had tried to talk to her parents about her concerns, but she was met with resistance.
Life changes fast. If your estate plan hasn’t been updated in a few years, it’s time to revisit it. Even if the conversations are awkward. The best thing that can happen is you correct an error or confirm your details. But without a timely update, you risk leaving out the youngest grandkid or triggering a family tension that can’t be easily resolved.
The estate plan conversation is so uncomfortable. Do we really have to talk about this?
Mike: We understand that this conversation can feel sad and awkward at best, and like a money grab at worst. That’s why we help families navigate these conversations. As an unbiased third party, we’re able to ask the questions that need to be asked, and finalize the details that need to be decided— all while helping both parents and children feel heard.
We can also help you name a corporate trustee. With a corporate trustee in place, you can avoid the family drama that may come with executing your plan, and ensure your resources are allocated as you prefer. This kind of trustee is unbiased, neutral, and always available— no sticky family situations required.
When you’re ready to start the estate plan conversation, or update your current plan, Cook Wealth can help
Mike: There’s no way around it, the estate planning conversation is going to be a little uncomfortable. But Derek and I can promise you, this conversation is less uncomfortable than leaving a pile of paperwork for your kids and grandkids to sift through. Because when you get this task squared away today, your family can focus on your love and legacy tomorrow.
Book an intro call with our team to learn more about our comprehensive, hands-on estate planning services.