Oct 12, 2023 4 min read

A recent study found that 68% of Americans do not have an estate plan and that many who do have not updated their information. While a lot of people may think they do not have enough assets to need one, this is probably not true. It is estimated the baby boomers will pass down $300 trillion in assets to their children. Without proper planning, distributions may not happen as desired and excess taxes may be due.

Estate planning starts with the surviving spouse. Upon the first death, income will decrease because one Social Security check will stop. The good news is that it will be the lower monthly benefit check. If the deceased was receiving a pension, it may end or be reduced. Expenses to run the household will not go down, but income taxes could increase significantly. Prior tax planning is necessary for a good estate plan.

There are a number of legal concepts that are used in estate planning, including wills and trust. A will is a legal document that takes effect upon your death. It outlines your wishes, including providing guardianship for minor children. It is often coupled with a power of attorney, which appoints someone to make decisions on your behalf when you lack the capacity.

An important concept that is often overlooked is having proper legal paperwork in place for dependent children after they turn 18. HIPPA laws may make it impossible for parents to get information about their health and to make decisions for their children. Trusts provide control over the distribution of assets, privacy, and potential tax advantages. It is a fiduciary arrangement that allows a trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways, specifying exactly how and when assets pass to the heirs.

For example, are you concerned that a young adult might fritter away his or her inheritance? A spendthrift trust might be the answer. Instead of an account that allows immediate access to the assets, the trustee of a spendthrift trust dispenses the assets over time. Additionally, a spendthrift trust typically protects assets from creditors, bankruptcy, divorce and lawsuits.

Is there a need to minimize taxes? An irrevocable trust might fit into your plan. By placing assets into an irrevocable trust, the estate’s value is reduced regarding estate taxes. Besides tax considerations, irrevocable trusts also help protect assets in lawsuits.

You may also decide to create a living trust, which transfers your assets to your beneficiaries and avoids probate. While you can find model documents online, you should work with an estate planning attorney to make sure that they are compliant with Pennsylvania law.

Unfortunately, over the years I have come across people who planned to get to the subject of estate planning but had a major life event take their life before the plan was executed. Also, it is very important to make sure that all your beneficiary designations reflect your desires. Beneficiaries are easy to change while you are alive, but impossible to fix after your death.

Sometimes, even the rich and famous do not have proper estate planning. In 2001, a famous father died in a tragic auto crash. His equally famous son was a principal player in the family business. The father was married to his third wife who did not get along with the son. As a result of the father’s death, there was a long and expensive legal fight. The son did not even own the right to use his own name and signature. Wonder who I am speaking about? Dale Earnhardt Jr.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”