What Are The Five Levels Of Estate Planning?
Planning your estate is not an overnight task. The process required in its creation involves several levels. Each level includes significant processes to ensure that the estate planning will be successful.
Here are the five levels of estate planning.
Level 1: The Basic Planning
In this level, you either do not have an existing estate plan yet or you have one but it needs to be modified or updated. Primarily, this level has the following objectives:
- Reduce the amount of estate taxes that need to be paid.
- Reduce the amount of probate proceeding fees which can be significantly high.
- Protect your heirs from predators. The absence of an estate plan will allow the court to make inevitable decisions for you.
In this stage, your last will is made. A will is a document that presents every detail of how you want your assets and financial affairs to be settled after the time of your passing. Aside from the will, the power of attorney for finances, and medical directives are also designated.
This means that in this stage, you are given the freedom to choose someone to make decisions for you in terms of financial and medical affairs.
Level 2: Irrevocable Life Insurance Trust
At this level, it is assumed that your estate exceeds the threshold for estate taxes. In 2022, those whose estate exceeds $12.06 million will be subject to estate taxes. You can plan to give cash gifts to your Irrevocable Life Insurance Trust for every beneficiary.
Level 3: Family Limited Partnerships
In cases where the insurance in Level 2 is not enough to cover your projected estate tax liability, family-limited partnerships can be a great option. The income generated from your gifted properties will automatically be removed from your estate.
Hence, establishing a Family Limited Partnership allows you to still manage these assets. You would normally be in charge as the general partner to manage the properties. You can also remunerate yourself for your services using the partnership’s funds.
If you used the interests of your Family Limited Partnership to your Irrevocable Life Trust, the income of the partnership can then be a way to pay for premiums which can free up your annual gift-tax exemptions for your other gifts.
Level 4: Setting Up Qualified Personal Residence Trusts & Grantor Retained Annuity Trusts
In such a case where you have used up your gifting tax exemption, setting up Qualified Personal Residence Trusts and Grantor Retained Annuity Trusts can be an option. Despite the fact that gift taxes are less expensive than paying for estate taxes, many would still prefer the latter. Hence, several techniques to gift your children while avoiding significant amounts of taxes were introduced.
You can set up Qualified Personal Residence Trusts which will enable you to transfer a residential or vacation house to your children while still having the right to use them for several years. The retained right of use of the residence reduces the interest, which results in a lower taxable gift.
Another strategy that you can utilize is setting up a Grantor Retained Annuity Trust. The GRAT is established by an income-generating property that pays you a fixed amount of interest for a period of time. This results in a lower taxable gift amount to your children.
Both of these trusts have the ability to lower substantially the amount of gift tax you need to pay. However, if the time of your passing does not make it to the stated period of these trusts, the properties will be listed back as part of your estate.
Level 5: Zero Estate-Tax Plan
Donating your estate to charity exempts you from estate taxes. But of course, you want to give your children a significant amount of inheritance. The Zero Estate-Tax Plan combines the proceeds of your life insurance and donating to charity to avoid paying estate taxes.
In this case, you will have to donate your estate to a charity to exempt you from paying the estate tax. Your children will then benefit from your life insurance proceeds, which will be free of tax.
How To Prepare For Estate Planning?
As mentioned above, planning your estate can be a headache. Here are the 10 steps which you can use as a guide to making your preparations smoother.
Step 1: Prepare The Necessary Documents
Official documents are important in the overall process of estate planning. Examples of essential documents are as follows:
- Marriage certificate.
- Divorce papers or official segregation agreements.
- Agreement on co-ownership (house).
- Life insurance documents.
- Returns on tax.
- Statements of your investments.
- If you own a business, financial records and agreements should be prepared as well.
Step 2: List Down Your Assets
Make an inventory of your assets. Include not only those tangible assets but also intangible ones. Financial accounts and debts should also be included in your inventory for distribution and settlement.
Step 3: Determine Your Goals
What do you want to leave for your loved ones? What are the objectives of why you even want to establish an estate plan? To help you in deciding on your goals, here are some of the possible aims:
- Facilitate the distribution of stocks to your heirs in a faster manner.
- Ensure that your spouse will be enjoying financial security.
- Increase wealth until you turn them over to your children.
- Reduce the number of fees at the time of the distribution.
- Reduce the amount of taxes you need to pay so the amount of wealth received by your beneficiaries will not be affected.
- Transfer ownership of the business to beneficiaries.
Step 4: Create Your Will
A will is a document that details everything that you want to happen to your assets at the time of your death. The will can also include:
- Who shall receive each asset you own.
- Who will be the liquidator or executor who will be assigned to distribute the wealth.
- Who will be the designated guardian if you have children under the age of 18.
Step 5: Decrease Taxes
As mentioned above, there are certain ways how you can play with taxes. However, make sure to consult professionals before making any move with regard to your estate taxes. Weiner Law will help you through the process and provide you with a deep understanding when it comes to estate taxes.
Step 6: Invest In Life Insurance Policies
Life insurance policies allow you to give your family financial security after your death. The insurance is tax-free and can be used to pay estate taxes on some of your property. You can name the beneficiary who shall receive the funds rightfully at the time of your passing.
Step 7: Create A Protection Mandate
A protection mandate is a document that expresses your wishes and instructions for certain decisions when you become incapable of doing so. This is good preparation for your final moments to ensure that everything is in accordance with your liking.
Step 8: Make A Medical Directive
A medical directive is a document that presents what medical procedures you want or do not want to undergo. If you are already incapacitated to create decisions for yourself, your doctor or family members shall refer to this document for the decision-making process.
Step 9: State Your Funeral Arrangement Wishes
To help your family in deciding on your funeral, you can either express your wishes verbally or in writing. Or, you can make arrangements with a funeral service for all the details of your funeral.
Step 10: Think About Organ Donations
You can either include this on your will or protection mandate. Or, there will be a consent registry available in a hospital that you can take a look into for organ donation. This is a very sensitive decision so make sure to think carefully before arriving at a decision.
How Can Weiner Law Help You In Every Level Of Estate Planning?
Weiner Law is a firm that focuses on estate planning. It helps you to fully understand every process of planning your estate. They value and take care of your family legacy protection. The firm seeks to not only transact with clients but create meaningful relationships to make the transactions smoother.
You can learn more about the significance of hiring an estate planning lawyer from Weiner Law. It will consider potential outcomes for your family in the event that you are unable to make a decision regarding an estate plan prior to your passing.
Weiner Law will make sure to meet with you for the signing of all crucial documents related to estate planning after four weeks of the in-depth planning session. Do not be alarmed; the service is still ongoing. Regarding the list of your assets and properties, the office will provide you with the necessary instructions.
Weiner Law verifies everything in your plan at this point. They will ask if you have any further questions or corrections to the plan. If you have any additional assets to transfer, Weiner Law will still handle them for you.
If you feel like Weiner Law is the win-win option to help you in your estate planning journey, visit their homepage here.