Why Now Is the Time to Create a Comprehensive Estate Plan

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When you hear the words “estate planning,” do your eyes glaze over and do you immediately think this must be something that applies to people who have a whole lot more money than you do? This is the reaction of many people when it comes to estate planning.

However, thinking this way can be a big mistake. You don’t have to be a multi-millionaire to create an estate plan. In fact, if you own anything of value — whether it’s a home, car, investment securities, real estate, a business or collectibles — you have an estate and need an estate plan.

What Exactly Is Estate Planning?
In its simplest terms, estate planning is the process of planning ahead to make sure that your personal possessions and assets are distributed as you desire when you die. Of course, nobody likes to think about death — but failing to plan for the efficient distribution of your estate after you die can result in disastrous consequences for your family and heirs.

One of these is that your assets might have to go through probate. This is a time-consuming and expensive process that makes the details of your estate public, which could deprive your heirs and family of much-needed privacy during a difficult time. And when your assets pass through probate, they will be distributed by the state, not necessarily according to your wishes.

Another consequence of failing to plan your estate is that you may not have appointed a guardian for your minor children. If you and your spouse both die at the same time, a court-appointed guardian will be assigned to your children — possibly without any consideration of your personal wishes in mind.
These reasons and more make it critical that you create an estate plan if you don’t currently have one. The core documents that comprise a comprehensive estate plan typically include:

  • Last will and testament — This explains how your assets should be distributed to your heirs and/or charity after you die.
  • Living will — This details how life-sustaining medical decisions should be made if you are incapacitated and can’t make them yourself.
  • Durable power of attorney and healthcare power of attorney — These identify an individual who will be responsible for handling your financial affairs if you are incapacitated or in a vegetative state.

Minimizing Gift and Estate Taxes
If you have a large estate, you should take your estate planning to the next level and plan for how to minimize your heirs’ potential gift and estate tax liability.

How large an estate are we talking about? The lifetime gift and estate tax exclusion in 2016 is $5.45 million — this is the amount of money that you can give away during your lifetime and pass on to your heirs free from federal gift and estate taxes. If you’re married, you and your spouse can pass on an estate worth up to $10.9 million before federal gift and estate taxes kick in.

So if your estate is smaller than $5.45 million, or $10.9 million if you’re married, you probably don’t need to worry about estate taxes. But if it’s larger than this, or you anticipate that it will grow to become larger than this by the time you die, you should meet with an estate planning professional to discuss strategies for minimizing estate taxes.

This is crucial because estate taxes can take a big bite out of the amount of money and assets your heirs eventually inherit. The effective federal gift and estate tax rate is 40 percent — so if your estate is worth $20 million, your heirs could pay estate taxes of $3.64 million (20,000,000 – 10,900,000 = 9,100,000 x .40 = 3,640,000) if no estate tax planning is done. Depending on where you live, state estate taxes might also be levied.
Give us a call if you have more questions about estate planning or need assistance in creating a comprehensive estate plan for your family.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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