No Estate Plan? Here Are 7 Moves You Need to Make

AUGUST 31, 2017
David Robinson, CFP


For high-income earners (looking at you, physicians!), having an estate plan in place is a crucial aspect of ensuring your loved ones are taken care of after you die. Without this necessary preparation, you could be leaving your family with a hot mess to sort out on top of their grief.

Physicians need to work out an estate plan that covers all contingencies in order to lock down post-humus distribution of property as intended. Death waits for no man, so the time to have an estate plan is now, regardless of your age and health. After all, an anvil could fall from the sky at any moment.
 
If you don’t have an estate plan, there are some key moves to consider making now:
 
·Write your will. A 2016 survey by Harris Poll for Rocket Lawyer found that 64 percent of American adults don't have a will. Nearly half of those without a will said they just hadn't gotten around to it. If you die without a will, your estate is distributed according to the laws of your state — not necessarily according to your wishes. After all, who’s to say what those wishes were if you didn’t write them down in a will? The antidote to the potential for unintended bequests is to engage a qualified estate planner, usually an attorney, to draft a legally binding will.
 
·Establish a living trust. If you become incapacitated, a living trust allows your appointed trustee to manage your assets on your behalf. If you don’t have a living trust, your state of residence might appoint a legal conservator to make decisions about your assets — an expensive process involving probate court.
 
·In community property states, pay attention to how your real property is titled. These are states where spouses are generally considered to be equal owners of assets acquired during the marriage. In these states, the best way to title this property is as community property with rights of survivorship. This way, when one spouse dies, the other receives a 100 percent step-up in cost basis on the property’s value. This means that upon the sale of the property, the surviving spouse doesn’t have to pay capital gains tax on the increase in the property’s value from the time it was first acquired by the couple.
 
·If the property is instead titled under joint tenancy, the surviving spouse may receive only a 50 percent step-up in cost basis, which can result in capital gains tax upon the sale of the property. In second marriages, if the physician’s goal is to not give the property to the new spouse, the property shouldn’t be titled with rights of survivorship. This is a highly complex area, especially when moving from a non-community property state to a community property state, so it’s imperative to get qualified professional advice.
 
·Make annual tax-free gifts to family members to reduce the size of your taxable estate and help your grown children when they most need it, perhaps to buy a house. As of this year, federal tax laws allow tax-free gifts of up to $14,000 per person and $28,000 per couple. Making such gifts regularly can be part of an effective strategy to reduce potential estate taxes. This year, estates of more than $5.49 million for single individuals and $10.98 million for married couples may be subject to federal estate tax of up to 40 percent. In addition, some states impose their own estate or inheritance taxes.
 
·Write a letter of instruction regarding what is to become of your personal belongings (not listed in the will) and provide a guide to them (e.g. saying where your car keys are located). This can help bereaved family members avoid arguments over who is to get what personal property and prevent confusion over where everything is kept.
 
· Be sure that the beneficiaries designated on your financial accounts (IRAs, 401(k) plans included) are what you truly intend. If there’s a conflict, these assets will go to the beneficiaries designated with the financial institutions. So be sure to double-check the beneficiaries listed with the institutions and make sure they’re consistent with your wishes. Also, keep in mind that beneficiaries who are minors are legally prevented from owning assets and that the age upon which they can do so varies from state to state.
 
·Remember that while you don’t want to be without an estate plan, the longer you live and the more your circumstances may change after establishing one, the greater the chance that you’ll need to update your plan. So be sure to revisit your plan with your estate planner at least every three years, or soon after a significant change in your wealth or after a major life change such as divorce, marriage or the death of a relative.
 
David Robinson, a Certified Financial Planner®, is founder and CEO of RTS Private Wealth Management, an SEC-registered advisory firm in Phoenix, Ariz., that provides fiduciary services to help pre- and post-retirement clients achieve their financial goals. He specializes in helping wealthy individuals — such as physicians, executives and professional athletes — prepare for the future by creating custom-tailored financial plans that employ a holistic approach including growing/protecting wealth, managing taxes, identifying insurance solutions, preparing for retirement and managing estate plans.
 

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