What You Need to Know About Estate Planning, Wills and Trusts

By definition, your estate consists of everything you own, including your checking and savings accounts, car, home, investments, real estate, furniture, and other personal belongings. And, while it may seem somewhat dreary, every estate has something in common: You can’t take it with you once you pass away.

Fortunately, estate planning is not all gloom and doom. You can take several measures while you’re alive and well to ensure that your estate is handled to your wishes and that your family’s burden is minimized. Below, we’ll detail the most critical aspects to estate planning and provide a helpful checklist and communication tool (at the end) so you can rest assured knowing your estate will be in good hands.

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What is Estate Planning and Why Is It Important?

Estate planning allows you to manage and preserve your assets during your lifetime and after your death. 

Estate planning happens both before and after you pass away. While you are alive, the estate planning process allows you to manage and preserve your assets. At death, your estate plan ensures that your belongings will be distributed according to your goals, objectives and wishes and can help ensure the minimization of taxes and administrative expenses.

What You Need to Know - Estate Planning

This is important because most people want to control how their assets are given to the people and organizations they care most about after their death, ideally with as little administrative burden as possible and without any disagreements or other issues. A key aspect of the estate planning process is to provide clear instructions as to who will receive your property and when and how it will be received. Depending on your age and other factors, your estate plan should also name legal guardians for your minor children, outline your wishes for transferring your business and provide additional planning for any family members with special needs or unique circumstances. 

Indeed, there are many elements to estate planning, which we’ll touch on below. There are no right or wrong answers when creating your estate plan, but it is vital to remember that creating an estate plan is the only way to ensure your wishes are carried out after your death.

Estate Planning Using a Will Versus a Revocable Living Trust

When people talk about estate planning, wills and trusts are naturally a key part of the conversation. But what are the differences?

A will is a legal document that provides direction on how property owned in your name (without a beneficiary designation) will be distributed after your death. Without a will, disbursements are made according to state law, which might not align with your wishes and priorities. In addition, a will names an individual (called an “executor” or “personal representative”) to manage and settle your estate as well as a legal guardian for any minor children. Since this is a legal document and legal requirements for an enforceable will vary from state to state, it is crucial that your will is well written and executed in accordance with your own state's laws.  

If you don’t have a valid will at death, any property not held in joint tenancy with right of survivorship or without a transfer-on-death or other beneficiary designation will be distributed in accordance with your state’s intestacy laws. These laws vary widely from state-to-state and it is quite likely that your state’s laws do not reflect your desired distribution plan.  Depending on the size of your estate and where you live, probate proceedings can get messy, legal fees can pile up, and family members or friends can feel overwhelmed and burdened from dealing with your estate in probate on top of grieving your death.

A trust is a legal document between a trustee (the person responsible for managing trust property) and grantor (the person who established the trust). A revocable living trust is another crucial piece of estate planning. A revocable living trust creates a separate legal entity to own, manage and administer property.  Because the trust is revocable, it may be amended or revoked at any time by the grantor and the grantor maintains control of the assets and can continue to utilize trust property for personal use. Additionally, the trust is not recognized for income tax purposes so no separate tax return is required and the grantor can continue to use his or her social security number for all tax reporting.

One of the primary benefits of a revocable living trust is that any assets that are owned by the trust will avoid probate, which can be costly and time-consuming. 

In addition, probate can delay distributions to beneficiaries and can interfere with the management of a closely held business or stock portfolio. Probate documents such as your will and statements of assets/property become public record, so having a trust in place generally helps preserve privacy and prevent public knowledge of your estate.

When a revocable living trust is used in an estate plan, a “pourover” will also be incorporated into the plan to specify custody and guardianship details for any minor children, potentially provide direction on the distribution of tangible personal property and also provide that any property that was not titled in the trust’s name will “pour over” into the revocable trust to be administered and distributed with the trust assets.  

Other Essential Estate Planning Documents

Estate planning is more than planning for disposing of your assets after death. Rather, a comprehensive estate plan will also provide that someone you trust will provide guidance on medical and financial decisions should you become incapacitated during life.  These documents are as follows:

Advance Medical Directive and Durable Health Care Power of Attorney

Advanced medical directives (sometimes called a “living will”)allows you to specify the medical treatments you do and do not want should you become incapacitated, such the use of CPR and tube feeding, and provides your wishes regarding organ donation.  A Durable Health Care Power of Attorney appoints someone to speak to your medical providers, access your medical information and make medical decisions for you if you are incapacitated. 

Durable Financial Power of Attorney 

A durable financial power of attorney allows you to name individuals who can act on your behalf for all financial matters if you become incapacitated. For example, if you were not able to do so the individual you name would be able to access your bank account to pay bills and work with your accountant to file your tax return.

Types of Common Trusts

When it comes to estate planning, trusts are a common component. Trusts may be established during life and become effective immediately or may be established through a revocable living trust or will and become effective at death. In addition to the revocable living trusts mentioned above, there are other trusts types and terminology to be aware of, including:

  • Irrevocable trusts generally cannot be modified or changed once the trust is established (although in many circumstances trust administrative and dispositive provisions can be altered with or without judicial intervention). A revocable living trust will become irrevocable upon the grantor’s death while other trusts become irrevocable as soon as they are executed.  A person may choose an irrevocable trust to protect assets from claims of creditors, provide long-term control over how, when and to whom trust assets are distributed and help minimize estate taxes.  
  • A marital trust is a special type of irrevocable trust that is generally established for a surviving spouse at the death of the first spouse. If structured correctly, estate tax on assets funding the marital trust will be deferred until the surviving spouse’s later death. As an additional benefit, the grantor can specify who receives the assets upon the surviving spouse’s death, helping to ensure that the original distribution plan is realized.  
  • Credit shelter (or bypass) trusts are a type of irrevocable trust that are intended to ensure that the grantor’s remaining estate tax exemption is fully utilized at the grantor’s death.  The provisions of these trusts may vary greatly, but often a surviving spouse and children or more remote descendants are named as beneficiaries. In addition, generation-skipping transfer tax exemption is often allocated to these trusts in order to minimize estate tax for future generations.  
  • A life insurance trust is another type of irrevocable trust that is meant to shield life insurance proceeds from estate tax. With a life insurance trust, the trust is generally the owner of the life insurance policy during the grantor’s lifetime and is the beneficiary of the life insurance proceeds upon the grantor’s death. Life insurance trusts can help provide tax-free liquidity for an estate while ensuring that proceeds are distributed or used in a way that is consistent with the overall estate plan.  
  • Crummey trusts are gifting trusts established during a grantor’s lifetime to take advantage of the grantor’s annual exclusion ($17,000 in 2023). The grantor has much discretion in naming beneficiaries and setting trust terms, but often a Crummey trust will benefit the grantor’s children and grandchildren.  
  • A charitable lead trust or charitable remainder trust allows the grantor to benefit both a charity or charities of choice as well as individual beneficiaries while also minimizing income and estate taxes.  

Do You Need an Estate Plan?

While executing an estate plan might not be at the top of your to-do list, it’s one of the essential pieces of your financial plan —regardless of your age, stage of life, health or wealth.

While there’s no single answer as to when you should begin the estate planning process, if you care about how medical, financial or other decisions are made when you cannot make them yourself, you should consider crafting and implementing your estate plan as soon as possible.

Pro Tip: 

Working with a team that includes a financial advisor, tax professional, and estate planning attorney can help you map out a complete estate plan that’s customized for you. 

Situations That Might Impact Your Estate Plan

You may think an estate plan is set in stone once you’ve constructed it, but it’s not. Life is constantly changing, and your estate plan should as well. Regularly reviewing your estate plan to make sure it’s updated with current laws and your evolving life changes is wise. In particular, the following situations will impact your estate plan and should serve as a triggering event to review your estate plan:

  • Relocation to a different state
  • Changes in your marital status
  • Additions to your family through birth, adoption, or marriage
  • The death of a spouse or close family member
  • A health diagnosis for you or your spouse
  • A close family member becomes ill, dependent on you, or incapacitated
  • A substantial change in the value of your assets or your plans for their use
  • The purchase or sale of an operating business
  • The receipt of a sizable inheritance or gift

When reviewing your estate plan, you will want to examine more than just who will receive property under your will and/or revocable living trust and will also want to review the following:

  • The titling of all assets to ensure ownership is understood and is consistent with planning
  • Who you have selected as your executor and/or trustee (or power of attorney under a health or financial durable power of attorney)
  • Who you have named as the beneficiaries of your life insurance policies, retirement plans and other assets with beneficiary designations
  • Who will serve as the guardian of any minor children 
  • The terms of any prenuptial or postnuptial agreements

What Estate Planning Means for Your Family

Does your family know who you have put in charge of making decisions if you cannot? Do they know where your estate planning documents are located and the legal and financial professionals who have assisted you in crafting your plan? If the answer is no, or if you are not sure, the process of what happens to your estate after your death can be potentially difficult and cause undue stress and discord among family members.

Estate planning helps you keep the peace, reduce anxiety, and allow your loved ones to focus on the process of grieving rather than dealing with the uncertainties, additional expenses and prolonged administration that often come with a lack of planning while also ensuring that your assets are divided and distributed as you intended.

We’d all like to believe that family members will be reasonable with each other after a death. Estate Plans make it so.

- Amy Jones, Chief Talent Officer, Plancorp 

Do you Need an Estate Plan if You Don’t Have a Spouse or Children?

Often a spouse and/or children receive the bulk of a person’s assets upon their death. Yet even if you are not married or do not have children, you should still engage in estate planning to pass on your legacy. Start by asking yourself: 

  • Who do you want as your executor and power of attorney to make financial or health decisions? The individual can be a trusted friend, another relative or even a trusted advisor. The same person need not be named in each circumstance; indeed, the person you trust most to make financial decisions may not be the same person you would like to handle medical decisions if you are unable.
  • Do you have relatives and friends who you would like to see receive your assets?  
  • Do you support any charities? Involving an estate planning professional to assist with charitable planning can help fulfill your charitable intent while maximizing both income and transfer tax benefits during life and at death.

Estate Planning Strategies & Taxes

After working your whole life to build your wealth, you want to not only benefit from it during your lifetime but pass it on to the next generation as efficiently as possible. We’ve detailed important documents and steps to take to ensure you do just that but there’s one element that’s sometimes overlooked: taxes. Estate taxes can substantially impact the value of assets that are passed onto future generations but there are strategies you can use to minimize your tax liability, such as:

  • Utilize the annual exclusion to transfer wealth each year (as of 2023, each individual may give up to $17,00 per person per year in gifts without using any lifetime exemption).
  • Make gifts in excess of the annual exclusion during life to “freeze” the value of gifted assets and remove future appreciation from your estate (as of 2023, each individual may gift up to $12.92 million without incurring a gift tax).
  • Leverage the value of your estate tax exemption by gifting assets that may qualify for discounts for such factors as a lack of control or limited marketability or by using split-interest trusts (such as a grantor retained annuity trust (“GRAT”) or qualified personal residence trust (“QPRT”)) where the value of the gift is reduced to reflect the grantor’s retained interest.
  • Pay for educational expenses of children and grandchildren or establish Section 529 plans to help fund these expenses.
  • Place your life insurance outside of your estate by establishing an irrevocable life insurance trust. 

These are just a few examples of estate planning strategies to consider. Consult with your financial advisor, estate planning attorney or tax professional to ensure that your estate plan meets your intentions while also minimizing taxes.

Estate Planning Professionals

One of the best things you can do to ensure the success of your estate plan is to assemble a team of qualified professionals to assist you. Here are three to add to your estate planning team:

Financial advisor 
A financial advisor is someone who provides financial guidance based on your unique needs and goals. A financial advisor may help with inventorying your assets, reviewing ownership and terms of trusts, life insurance policies and retirement accounts and help to educate and update beneficiaries on estate planning matters if appropriate.  Your financial advisor can help you determine your estate planning goals, recommend individualized estate planning strategies to meet those objectives and then help implement and monitor your plan.  

Estate planning attorney 
An estate planning attorney drafts all the critical documents needed in your estate plan, such as your will, trust, advanced medical directive and durable powers of attorney, and other legal documents. Working with an estate planning attorney can help your executor navigate or outright avoid probate court and ensure all assets are correctly titled and ultimately distributed under the law and your estate planning documents. 

Tax professional 
Tax professionals can help you interpret the complexity of state and federal tax laws so you can accomplish your goals while minimizing taxes and ensuring that all tax filings are properly and timely made. 

It’s never too early to think about your estate plan or build your team. If you need help finding a financial advisor, you can read more about what it’s like to work with Plancorp here.

Cost of Estate Planning 

Are you curious how much estate planning generally should cost you? The answer is simple: It depends. The complexity of your estate plan will ultimately determine the price of your estate plan. For example, a couple with one minor child and average wealth and asset composition will need an estate plan that focuses primarily on guardianship of their minor child and an efficient transfer of assets. On the other hand, a wealthy business owner with multiple children and spouses will need a plan that focuses on complex generational wealth and business succession issues.  

Estate Planning Checklist and Action Items

Feeling overwhelmed? We get it - we’ve covered a lot! But don’t be. Estate planning is designed to help you, your executor, and your family avoid that very feeling. That’s why we’re ending on a high note - an estate planning checklist with action items to get your life and estate plan organized with minimal stress.

  1. Get your team together, including your financial advisor, tax professional and estate planning attorney to craft your estate plan.  
  2. As part of this process, work with your team to inventory all of your assets and liabilities so that you have a good understanding of your personal balance sheet.  This information will be needed to create your individualized estate plan and ensure that all assets are incorporated into your plan. 
  3. Review all assets and accounts with beneficiary designations and ensure they are titled appropriately in a way that reflects your distribution wishes and avoids probate (such as a default provision naming your estate as the beneficiary). 
  4. Remember that comprehensive estate planning starts with planning for lifetime disability (both short and long-term) and work with your estate planning advisors and the individual(s) you have named as your power of attorney to establish a plan to address both temporary periods of incapacity (such as after a medical procedure) and long-term disability. 
  5. Create an estate planning memo that tells your executor where they can find all of your important documents and other information like your bank accounts, descriptions of property, and other outstanding liabilities when the time is necessary. This information should also include information related to your digital assets, such as passwords to your computer and social media accounts.  Finally, be sure to include contact information for your financial advisor, attorney, accountant and any other professionals with whom you work as well as other individuals who your executor may need to contact after your death.  
  6. As part of your estate planning memo or in a separate letter of instruction, provide supplemental information and  additional wishes such as your desired funeral arrangements, information regarding caring for pets or special items to note regarding maintenance of your home or other possessions.   
  7. Remember that your estate plan will be most effective with proper implementation. Work with your estate planning team to re-title assets, etc… as needed
  8. If you already have an estate plan, consider if the documents are up-to-date and reflect your wishes. If in doubt, consult with your estate planning team to determine if any changes would be advisable. Due to changes in the tax laws and rules surrounding retirement accounts, your estate plan should be reviewed every few years even if nothing in your personal life has changed.   
  9. Ensure that everyone in executing your estate plan – including your executor and powers of attorney – have copies of all documents.
  10. Finally, consider sharing your plans and intentions regarding your estate plan and the distribution of your assets with those who will inherit property.  While you may feel uncomfortable sharing this information during life, relaying this information directly may help to avoid conflicts and misunderstandings after your death. 

Next Steps

Creating your estate plan doesn’t need to be stressful or complicated — and once you’re finished, the peace of mind you’ll receive will be worth it! Just use the guidance throughout this resource and be sure to reference our checklist to get started with your estate planning.

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This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

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