In 2010 George Steinbrenner, the owner of the New York Yankees, avoided paying $500,000,000 in taxes. Believe it or not, the government has a tax that families have to pay at death. Steinbrenner had accumulated over a billion dollars in net worth which meant he was going to owe a significant tax bill at death. As fortunate timing would have it, in 2010 George W. Bush passed an act that eliminated estate taxes. It was only for the year 2010. This is the year that Mr. Steinbrenner passed away. For the Steinbrenner heirs, this meant an extra $500,000,000.
The Steinbrenner's spent thousands if not millions on estate planning, but their biggest win was simply due to a little luck.
In this blog, I am going to break down what an estate plan is and the 5 core components. Follow these and you won't have to rely on getting lucky.
What is an Estate Plan?
Your estate plan is simple. It is a place where you can outline in advance your wishes.
Who takes care of me?
Where is your money going?
What the money can be used for?
Who takes care of my loved ones?
Who is in charge of distributing my assets?
These are only a few questions your estate plan can answer. Just like any good plan the best estate plans are done in advance. If you do not do it in advance you get the government's plan. This is what we call the probate process. This process exposes your information publicly and allows anyone to make a claim to your assets. Trust me you probably don't want the government's plan. Follow these steps to help better plan for the future.
5 Components of Your Core Estate Plan
1) Revocable Living Trust
You may have heard of a trust before. I am going to help demystify it for you. A trust is simple. It is a written plan for your assets and wishes. For many adding beneficiaries to assets is step one and a trust is step two. A few reasons why I recommend a trust over just beneficiaries:
If your beneficiary dies at the same time as you these assets will go into the probate process.
Creditors can come after these funds once given outright to your beneficiary.
You have no control over how your beneficiary uses these funds.
A revocable living trust can fix many of your issues. The best part is with a revocable trust you can change it at any time. This is my number one idea for those looking to provide direction and protection to their assets.
2) Pour Over Will
Now you know what happens to your property with a title let's talk about all the other stuff. These are all the items you own but don't have a title for.
The way a pour over will works is it instructs your estate to move or pour all of these assets into your trust. They will avoid probate and will be distributed based on the trust. Many people want to direct these items because of their monetary value or sentimental value. The pour over will allows you to do just that.
3) Power of Attorney
Have you ever wondered what would happen if you couldn't make financial or healthcare decisions for yourself? Well, there are two options that you have.
You get the government's plan.
You get to decide in advance who is making these decisions.
In the first scenario, a judge is going to appoint someone on your behalf to make these decisions. They can appoint who they deem fit. This could have huge implications depending on your net worth and situation. In the second scenario, you are able to outline exactly who you want to have this authority, when they get this authority, and exactly what they can and can't do.
I am yet to meet someone who wants the government's plan. As we like to say at Moment, plan now or regret it later.
I have three kids and I want to make sure they are protected if something happens to my wife and I. Proper planning involves guardianship planning for children. A well designed estate plan will dictate who, when, and how a guardian will be able to watch over your children.
Within guardianship, there are a few components to consider.
How can that guardian use your money?
What schools would you like your child to attend?
What area would you like your child to grow up in?
It amazes me how many people care deeply for their kids, but haven't taken a few hours to get guardianship taken care of.
5) Estate Taxes
Every decision you make in your financial life will have a tax consequence. Even your estate plan can have a tax consequence. The good news, if you are worth less than $13,610,000 in 2024 you are not not subject to estate taxes. If you aren't sure what your net worth will be let's look at a few components you should consider.
Bank and Investment Accounts
Death Benefit of Life Insurance
Value of your Business
Real Estate Assets
If you add up all of these items and it is under $13,610,000 then you will avoid this tax. If you are over this amount you will be subject to estate taxes. These brackets get up to 40% almost immediately. Thankfully there are steps and solutions to avoid these taxes. The easiest way to increase the tax free portion of your estate is to get married. This alone can double your exemption to $27,220,000 through proper planning.
At Moment, many of our clients are navigating impending estate taxes. We like to think about this planning as the second level of the house. Step one or the revocable trust is the foundation and everything we do is build on that. There is incredible nuance in planning done for families navigating estate taxes. To take your learning a step further, learn how gifting can be a powerful strategy to consider. If you are concerned about your potential estate tax bill, consider schedule a call to see how we can help.
We might not all own professional baseball teams and have a $500,000,000 dollar tax bill to avoid, but I can assure you that these 5 steps can help anyone in any situation. Remember, estate planning doesn't need to be scary. There are simple steps you can take today. Our job is to help guide you on your path to success.
If you are a pro athlete or entrepreneur who is interested in a free review of your estate plan, schedule a call and talk with a Moment founder.
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*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.