Understanding your estate plan

It is common for clients to rely on an estate planning attorney to create their trusts and other legal documents and then to sign the documents without a thorough understanding of what they say. However, it is very important to understand the details of your estate plan and to be able to communicate to your beneficiaries exactly how it will unfold over your lifetime and theirs. Whether you are considering a living trust, LLC, charitable trust, grantor retained annuity trust or any other approach, it is crucial to understand all the potential benefits and pitfalls.

Choosing successor trustees

Whom do you want to oversee the distribution of your estate after you pass away? If you have multiple children, do you choose one child or have them all be cotrustees? These are important considerations that could affect the outcome of your estate plan. If you do not have anyone you are able to entrust with that responsibility, or if you worry that your children may be at odds, then you may want to consider a corporate trustee to help implement your plan.

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Updating power of attorney

You should periodically evaluate whether you have designated the right person to have power of attorney in the event that you cannot make decisions about your finances or healthcare. Do you still have confidence in that person? If several years have passed since you chose that individual, you should confirm that he or she is still open to serving as your power of attorney.

Naming beneficiaries

IRAs, annuities and life insurance policies do not belong in your living trust since you can directly designate beneficiaries on those assets. By listing individuals on these accounts, you ensure that all beneficiaries will receive, upon your death, their specified shares without the complication of having to go through your estate. In the case of an IRA, all individuals will inherit their shares and can opt to receive distributions over the course of their lifetimes, which can be an effective tax strategy.

Distribution of assets

It is common that a living trust will distribute assets to beneficiaries in an outright manner at death. You may want to consider whether this form of distribution is best, or if the beneficiaries should inherit the assets in trust. Distributing assets in trust for your beneficiaries will allow them to protect the assets from divorce, lawsuits or claims from creditors.

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Reviewing your estate plan

You should review your estate plan every five years or so. Also, if there are any major life changes—such as a birth, marriage, death or divorce—that would affect your estate plan, you should make an adjustment. Regular assessments allow you to revisit your overall strategy, review changes in tax laws and evaluate whether your plan is in line with your current thinking.

Communicating with the next generation

It is important to have conversations about your estate plan with your children and/or beneficiaries. These discussions may not be easy to have, but they are necessary. Ensuring that all parties involved are on the same page will help assist with the distribution of your estate when that time comes.

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Securities offered through Royal Alliance Associates Inc., member FINRA/SIPC. Investment advisory services offered through SEIA LLC. Royal Alliance Associates Inc. is separately owned, and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates Inc. (CA Ins. License Vince A. DiLeva #0B84300)