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Estate planning: Not just for the wealthy

Blended family sitting outside on rock hugging and smiling

The word estate conjures up notions of mansions, second homes, expensive cars and money galore. Now dispel that notion. Everything you’ve ever accumulated in your life is your estate, and having a plan to manage it – and even your life itself – is not only smart but often necessary.

It is only the top 0.1 percent of U.S. earners who have to worry about the federal estate tax. Beginning in 2023, each individual can pass approximately $12.92 million during life, at death, or in some combination thereof free of estate, gift and generation-skipping transfer tax. Married couples can transfer approximately $25.84 million. But even for those who will never reach that level of wealth, there are still tax implications and important financial decisions to be made.

Estate planning also helps you prepare for scenarios if your health declines or you become incapacitated, through drawing up powers of attorney for financial and medical decisions.

Start with a conversation with one of the bank’s knowledgeable trust and estate planning services professionals. He or she will get to know you and your situation and make recommendations based on that – not from a generic questionnaire that has you list your assets. He or she will listen to your story and understand your family dynamics – the good and the bad – so the best decisions can be made. And, he or she can connect you with other local, trustworthy professionals (like an attorney) to help you get the right protections and plans in place.

The first question to ask yourself is when should estate planning begin? A major life event (such as having a child) or a major purchase (such as buying a home or property) or investment should prompt the discussion. Who should take care of your child if you should pass? What happens if you become medically incapacitated? How will your assets be distributed? Laying out those decisions ahead of time makes it easier on your family.

The important documents

There are key documents everyone going through estate planning should consider. They can simplify the process and protect your family from having to make hard, sometimes painful decisions:

  • Drawing up powers of attorney will designate a relative or close friend to oversee your estate and your health care decisions if you no longer can. These are your plans, and the agent acting on your behalf is just making sure they are carried out as you wish during your lifetime. A durable power of attorney for health care is for when you become mentally ill or injured to incapacitation. You predetermine your treatment preferences, and your agent ensures they are followed. A durable financial power of attorney gives your agent the right to manage your financial affairs, which can be as simple as sorting through your mail and paying your bills or as complex as managing your investments and filing your taxes.
  • Creating a living will (anyone over 18 years old should consider having one) provides directives on end-of-life care, such as whether you wish to remain on life support and have doctors do everything they can for you or implement a do-not-resuscitate order.
  • Having a will or trust allows your assets to pass directly to your heirs and removes any ambiguity about who gets what. You set the rules, and everything is revocable during your lifetime. Having a will is an excellent precaution in case you miss designating assets in other estate documents – that way you still have a say in who distributes them and how they’re distributed. You also can create an irrevocable trust that cannot be altered. Once established, you give up claim to any asset placed in the trust, and the trust itself cannot be terminated. The assets exist for the sole benefit of your named beneficiaries.

Revisit your documents every three to five years to ensure your intentions are still reflected and keep up with current laws.

Your digital footprint

Also consider your digital assets (online business, photos, online-only bank accounts, etc.). Create a document with location, usernames, passwords, login IDs, security question answers and PIN numbers. Make sure your digital plan doesn’t contradict your will.

Don’t forget to update the digital estate plan as passwords and such change, and be sure to indicate if you want any items deleted.

Tax planning

Even small investments can benefit from considering the tax implications during estate planning. Often people will try to gift investments to their heirs, worrying that holding onto them and having them pass via inheritance would create a bigger tax burden.

The opposite could be true. For example, a stock bought at $20 increases in value to $500. If that stock is gifted, the recipient would be responsible for the 15 percent tax on the $480 in capital gains and any subsequent gains. But if the stock is inherited after you pass, your heirs don’t have to pay any capital gains taxes on the $500 stock value. The inherited amount becomes the “cost basis,” the new original value of the stock in determining gains or losses.

Gifting can become beneficial if your estate is near the estate tax thresholds. Gifts are not considered taxable income and they can reduce the size of your estate. Individual gifts of up to $17,000 annually do not have to be reported.

Be sure to consult a tax professional when addressing this area of your estate planning. And know your individual situation might have exceptions to any advice or examples here.

Why create a trust?

A trust will bypass the probate court while a will is subject to probate to give any creditors a chance to make a claim on your estate, even if you pass with no debt. A trust also is not publicly accessible. A will has no such protections and can be contested by anyone. An exception to this is a testamentary trust, which is created through a will and only becomes active at your death. The probate court oversees the trust until its completion, and depending how long that is, the associated legal fees could be significant.

Some other considerations:

  • Trusts can distribute inheritance at a later date, say for minor children, and determine how much they receive and how the money should be spent (such as for education or medical expenses only).
  • Trusts also can put different rules in place for descendants to receive your assets. For instance, one child is successful and good with money. You can choose his or her inheritance to be handed over outright. The second child has shown a propensity for poor spending habits. You can structure your trust to do a smaller up-front payout coupled with structured payouts up to a certain age, over their lifetime or anything in between.
  • Trusts ensure your assets go where you intend them, especially in families affected by remarriage.
  • As a general rule with trusts you can avoid attorney costs and court fees associated with probate, although establishing some trusts require attorney involvement depending on their complexity.
  • Trusts often are more expensive to create than a will because they must be actively managed after you’re gone. But a will’s probate process can be costly, so factor that into your decision as you determine whether a will or trust (or some combination of the two) is best for you.
  • Someone close to you or a corporate executor, such as a bank, can act as trustee. Your assets are not considered part of the bank’s assets, so even if the bank were to dissolve, your assets would be safe.

Talking about how best to care for you and distribute your assets as you age is never an easy conversation. But we hope you can use this information as a good starting point for your discussion with a trust or estate planning professional.


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