Why Estate Planning is Critical to the Successful Transfer of Wealth

Transferring Wealth through Estate Planning

Generational Wealth transfer is the process of passing wealth from someone who has died to their beneficiaries. Estate planning, at its core, is simply providing a roadmap directing where you want your things to go and through what manner they are distributed. This roadmap applies to everything you own including personal assets such as jewelry and furniture, as well as investment and real estate assets. Having an estate plan in place keeps you in the driver’s seat.

Without a will, your assets will be distributed according to your state’s intestacy law; meaning the state will decide who inherits your assets. I have been in the unfortunate position of explaining to a surviving spouse that, without a will in place, half of the decedent spouse’s assets go directly to their children. This can financially devastate the surviving spouse.


Many Benefits of Estate Planning

Taxes: With the current estate tax exemption at a little more than $12 million per person, many believe there is no need for estate planning, however estate taxes are only one aspect to consider. Proper estate planning can save your loved ones time, money, and stress. Sadly, I have witnessed families fall apart after a death simply due to misunderstanding or lack of direction regarding one’s wishes at death.

Probate: For some folks, avoiding probate is a top concern. Probate is simply a court process that ensures the will follows the law. The executor or personal representative is appointed and administers the estate. The executor is responsible for managing and protecting estate assets, paying debts and expenses, collecting amounts due to the estate and transferring those assets to the heirs. Probate costs vary by state and can be expensive. The probate process typically lasts between 9-12 months, although more complicated estates can take much longer.

Privacy: If privacy is a concern, you may wish to avoid probate because assets that pass-through probate become public record.

There are several ways you can avoid probate. For example, real estate and investment accounts can be held in a living or revocable trust. At your death, the Trust document directs how these assets are distributed without going through probate. Retirement accounts such as 401(k)s or IRAs, as well as insurance policy proceeds, will pass to those named as beneficiary without going through probate. You can also title bank or investment accounts as “Transfer on Death” to name beneficiaries on these accounts, thereby avoiding probate. Married couples generally title their home “Joint with Rights of Survivorship” which passes directly to the surviving spouse without probate.

Medical Expenses: Protecting future assets from depletion due to medical or nursing home expenses is another important aspect of estate planning. Purchasing insurance to cover these expenses or placing assets in an Irrevocable Trust can help protect and preserve assets from this risk.

Illiquid Assets: Families with businesses or substantial real estate holdings can face liquidity issues at the death of a loved one due to the majority of the family wealth being held in hard or illiquid assets. This could force the family to sell assets at reduced prices in order to raise cash needed to settle the estate. A life insurance policy purchased by and held in an “Irrevocable Life Insurance Trust” can provide liquidity when needed at death.


Transferring Wealth Today

Annual gifting is another strategy that can be used for the transfer of wealth. Currently, the annual gift exclusion is $16,000. If you are married, both you and your spouse can gift $16,000 each for a total of $32,000 per year to an individual. This is a great way to transfer wealth to the next generation and allows you the opportunity of seeing them enjoy the gift during your lifetime.

As you can see, there are many reasons to have a proper estate plan as part of your overall financial plan. Your goals and objectives will dictate which planning tools work best for you. I welcome an opportunity to sit down with you to discuss the goals and wishes you have for the protection and distribution of your future estate. Putting together and communicating those wishes to your loved ones may just be the best gift you ever give them.


Melissa D. Bane, CPA, CFP®, PFS®, ChFC is a Senior Private Client Advisor at Greenwood Capital Associates, LLC, Melissa provides personal attention and service to high net worth individuals, personal trusts, and foundations.

The information contained within has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.  The opinions expressed are subject to change from time to time and do not constitute a recommendation to purchase or sell any security nor to engage in any particular investment strategy. Investment Advisory Services are offered through Greenwood Capital Associates, LLC, an SEC-registered investment advisor.

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