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5 Estate Planning Steps to Take Now
Greg Lavelle • Oct 23, 2020
If you haven’t already put together an estate plan, there is no time like the present. While deciding what to do with assets after your death can be an uncomfortable topic for many, it can be equally uncomfortable to envision your estate tied up in probate court for months or years. If you want your loved ones to inherit assets smoothly, without a lot of legal hassle and tax risk, an estate plan is an essential part of your overall long-term financial plans.
Draft a will.
Yes, everyone needs a will - even those without a significant amount of money. Leaving directions regarding your final wishes can remove a lot of burden from family members at a difficult time.
Name appropriate beneficiaries.
Contrary to popular belief, a will does not provide the final say regarding some assets. Life insurance policies, retirement funds, and some other assets will be distributed to the beneficiary named on the account. If you don’t name a beneficiary, these assets will have to pass through probate court and a judge will decide their ultimate fate.
Remember to review and update beneficiaries regularly, especially after major life events like a birth, death, or divorce. Naming a back-up beneficiary is a good idea, too.
Consider a trust.
Assets placed in a trust are not subject to probate court, meaning you can pass them directly to heirs without any legal hassles. For those concerned about protecting the privacy of their heirs, you might be relieved to know that assets within the trust are not subject to public record.
Several different types of trusts exist, each with different limitations and serving unique purposes. Work with an estate planning attorney to determine the right type of trust for your situation.
Pass some assets now.
If you already know you want to leave money to certain family members, friends, or even charities, you don’t have to wait. For those with larger estates, who prefer to avoid inheritance taxes, gifting assets during your lifetime can help to accomplish that goal. Currently, you can gift up to $15,000 per person, per year, free of taxes (the recipient won’t owe taxes either).
If you choose to donate money to charities, those gifts can be tax deductible. Make sure you have chosen IRS-approved organizations.
Investigate Roth conversions.
Since distributions from traditional retirement accounts can be taxed as regular income each year, you might wish to save your beneficiaries from that headache. Converting funds to non-taxable Roth accounts can be one way to accomplish this goal.
Give us a call if you need more information on how to select beneficiaries and protect them from excess taxes. These measures should be taken under the guidance of an experienced financial advisor, who can help you minimize the tax burden on yourself as well.
Life insurance isn't one-size-fits-all. Just as your life evolves over time, so too should your insurance coverage. Whether you're starting your career, raising a family, or enjoying retirement, understanding how to tailor your life insurance policy to your current life stage is essential for ensuring adequate protection for you and your loved ones. Starting Out: Young Professionals As a young professional just starting out in your career, life insurance might not be at the top of your priority list. However, this is the ideal time to secure coverage, as premiums are typically lower when you're young and healthy. A term life insurance policy can provide affordable protection for your loved ones in the event of your untimely passing while also allowing flexibility to upgrade to permanent coverage later on. Growing Family: Parents and Homeowners For parents and homeowners, life insurance becomes even more crucial. You want to ensure your family is financially secure and able to maintain their standard of living if something were to happen to you. Consider a combination of term and permanent life insurance to cover immediate expenses, such as mortgage payments and childcare costs, as well as long-term financial needs like college tuition and inheritance planning. Midlife Milestones: Empty Nesters and Career Climbers As your children grow up and become financially independent, your insurance needs may shift. You might choose to adjust your coverage to reflect your changing financial obligations and goals. This could mean reducing coverage amounts or transitioning to a policy with cash value accumulation features, such as whole life insurance, to supplement retirement savings and leave a legacy for your heirs. Retirement: Golden Years and Legacy Planning In retirement, life insurance can still play a valuable role in your financial plan. While your need for income replacement may decrease, you may still want coverage to cover final expenses, estate taxes, or leave a financial legacy for your loved ones. An insurance policy with guaranteed death benefits, such as universal life insurance, can provide peace of mind and help protect your assets for future generations. Review and Adjust Regularly Regardless of your life stage, it's essential to review your life insurance coverage regularly to ensure it continues to meet your needs. Major life events, such as marriage, divorce, birth of a child, or career changes, may warrant updates to your policy. Working with a trusted life insurance broker can help you incorporate these changes into your long-term plans and make informed decisions about your coverage. Life insurance is a vital component of your financial plan at every stage of life. Meet with us now and regularly in the future so that we can help you evaluate and adjust your life insurance policy to ensure that it truly meets your needs.
Receiving a notice from the IRS for an audit can be a nerve-wracking experience. The time, effort, and potential financial consequences make it a situation you'd rather avoid. Fortunately, many audits stem from avoidable errors. Here's how you can avoid the five most common audit triggers and keep your tax returns in the clear. Ensure You Report All Income Income discrepancies are a major red flag for the IRS. While taxes are typically withheld from regular wages, other sources of income, like business earnings or capital gains, may not have taxes automatically deducted. Be vigilant in accurately reporting all sources of income, whether you receive a 1099 form or not. Document and report any non-wage income meticulously to prevent underreporting. Explain Significant Income Fluctuations Significant fluctuations in income from year to year can draw the IRS's attention. If your income varies widely, provide explanations or notes with your tax filings. Whether it's due to changes in business circumstances or other factors, clarifying these fluctuations can help prevent misunderstandings. Document Business Losses Carefully While it's common for businesses to experience losses, chronic or substantial losses can raise eyebrows at the IRS. Keep detailed records of your business finances, especially in the early years. Additionally, if you operate a sole proprietorship, ensure your business activities are distinguishable from hobbies to justify loss deductions. Support Your Deductions Certain deductions, such as large charitable contributions or home office expenses, may attract scrutiny. Be prepared to provide supporting documentation for all deductions claimed on your tax return. Thorough records can help substantiate your deductions and alleviate concerns during an audit. Accurately Value Assets For estate tax returns, undervalued assets are a common trigger for audits. When valuing assets without a public market price, seek multiple appraisals from qualified professionals. Having multiple valuations can strengthen your position and minimize the risk of an audit. Remember, even if you enlist professional help for your taxes, the responsibility for accuracy ultimately lies with you. Review your tax returns carefully before signing them to ensure everything is in order. Understanding the Different Types of Audits IRS audits come in three main varieties, each with its own level of intensity. Correspondence Audit. Conducted through the mail, this audit is often triggered by missing information or minor discrepancies. Office Audit. Requires a visit to an IRS office, typically for more complex tax returns or multiple disputed items. Field Audit. The most comprehensive type, conducted in person at your home or business, involves a thorough examination of your return. Regardless of the type, the IRS will provide a written request for specific documents beforehand. By being proactive and thorough in your tax reporting, you can minimize the risk of an audit and ensure a smoother process if one does occur.
