Creating an Estate Plan
If you want to ensure your assets are distributed the way you choose, you should address this important issue regardless of your age. Here are some issues to consider so you can create an estate plan that is most appropriate for your personal financial situation.

Make certain you have a will. 

Regardless of the size of your estate, having a will is vital. Without one, your estate will be distributed under guidelines determined by state law, rather than according to your wishes. Also, without a will, the probate court will determine who will handle the affairs of your estate after your death. With a carefully prepared estate plan, either employing a will, or a will and a trust, you dictate who will receive your estate and who should handle your affairs after death. 

Select an executor or personal representative. 

An executor or personal representative is the individual or institution you select to handle your affairs after death and to settle your estate. The job includes a wide range of responsibilities, such as:

  • Overseeing the management and ultimately the transfer or disposition of your assets
  • Determining your heirs and devisees
  • Filing your last income tax returns and death tax returns
  • Ensuring that your wishes are carried out in an orderly manner 

Given the importance of these responsibilities, make this choice carefully. If your estate is relatively simple, selecting your spouse, a family member or someone else you feel has good judgment, as well as the ability and time to handle the myriad legal and financial matters associated with settling an estate is an option.

If your estate is complex, or you have no one who meets the criteria, or if you simply don’t want to burden your family with the task, you may name an institution as your executor or personal representative. Hilliard Lyons Trust Company, LLC serves as the personal representative for many of our clients, and may be able to help you. In certain situations, such as a second marriage, having an objective, independent party serve in this capacity can help minimize family conflict and facilitate the orderly settlement of your estate.  See your Wealth Advisor for more information.

Determine if your estate may be subject to taxation.

As of January 1, 2018, your estate may be subject to federal estate tax if it is valued in excess of approximately $11.2 million. The estate tax is 40% on the excess. Your taxable estate generally includes all of your assets. This includes but is not limited to:

  • Retirement savings, such as IRA and 401(k) accounts
  • Life insurance on your life and payable to your estate or over which you retain an incident of ownership within three years of your death
  • Real Estate you own in whole or in part
  • Personal property 

Generally, assets of any amount passing to a surviving spouse (or to a properly drafted trust for the benefit of a surviving spouse) are not subject to estate tax when the first spouse passes away; all other assets in excess of the estate tax exemption applicable in the year of death are subject to estate tax. Each spouse has a separate estate tax exemption, however, with effective planning, married couples may be able to use both of their exemptions and effectively shelter an aggregate amount of almost $22.5 million from estate tax.

Thoughtful planning can also help preserve and protect assets for your descendants in a way that helps minimize the generation-skipping transfer tax, a wealth transfer tax similar to the estate tax. Note that laws regarding the amount of the estate tax exemption and other exemptions described in this document are limited to U.S. citizen spouses; different laws and planning strategies may be applicable to non-citizens. 

Also, a flexible plan is important.  In the year 2026, without additional action by Congress, the Estate, Gift and Generation Skipping exemptions will revert to prior amounts adjusted for inflation.  That means the exemptions will FALL significantly – probably in the range of $5.5 - $6 million per person.

Coordinate the ownership of assets with your estate plan. 

Proper estate planning is essential to help assure that married couples make efficient use of their available estate exemptions to help minimize estate taxes. Some couples have engaged in sophisticated estate planning for years, while others have only a basic plan—or none— in place. Wherever you are on the planning continuum, having appropriately drafted documents in place that reflect your current wishes is only one part of the planning equation. It is equally important that ownership of assets be periodically reviewed and potentially changed, so that whether assets are owned by you, your spouse, or jointly, they flow correctly within your estate plans.

Confirm beneficiary designations for insurance policies and retirement plans. 

In addition to coordinating the ownership of your assets with your estate plan, it is vital that you confirm that your beneficiary designations for retirement plans, such as IRA and 401(k) accounts, and life insurance policies are up to date. Regardless of what is stated in your will, assets in retirement plans and life insurance policies pass at death according to the most recent beneficiary designation you made. A trust can be the beneficiary of retirement plans or life insurance. The laws regarding making retirement plan benefits payable to a trust are complex, however with careful drafting, trusts may be structured to “stretch” out minimum required distributions over a longer period of time thereby offering the opportunity for enhanced investment and income tax advantages to a trust beneficiary. If your estate is the beneficiary of retirement plans, these “stretch” provisions are not available. 

Use gifting to reduce your estate and estate taxes. 

The government generally can’t levy an estate tax on something you don’t own. Annual gifts are a great way to reduce your taxable estate, but the government limits the amount you can give away to a certain amount per “giftee”, per year. In 2018, that amount is $15,000. Married couples who agree to split gifts can increase this amount to $30,000 per “giftee.” Gifts exceeding the annual exclusion amount are subject to gift tax. The individual lifetime gift tax exclusion is approximately $11.2 as of January 1, 2018. Gifts in the excess of the annual exclusion reduce the lifetime exclusion which also reduces the exemption available at death. 

Throughout your life, you can also make unlimited gifts to charitable organizations as well as to your spouse with no gift tax consequences. You can also reduce your estate by paying certain education and medical expenses on behalf of loved ones directly to the institution or provider. Gifts made in this manner do not count in the annual exclusion gifts per “giftee”.

Investigate trusts as a means of reducing transfer costs, increasing privacy, and protecting your family after your death. 

Regardless of the amount of the estate tax exemption, the non-tax benefits of trusts to help preserve and protect assets for your beneficiaries continue to make trust planning an important component of estate planning. Certain trusts, such as a living trust or a revocable trust, can limit the assets that go through probate (the court supervised process of transferring assets at death). Some trusts can protect assets during your lifetime – these strategies can be particularly important for physicians or others who have high risk occupations.  Other types of trusts enable you to protect assets for your children’s lives or at least until they reach certain ages. Some trusts, such as “dynasty” trusts are designed to benefit multiple generations. A trust can provide a reliable financial resource for an ill or incapacitated relative, or protect your assets from the creditors of your heirs. Finally, some trusts can be established to provide support for charitable causes before or after death providing income tax and estate tax relief strategies.

Revocable or Living Trusts 

A foundational element of many estate plans is a revocable trust, sometimes called a living trust, which may be created by someone for his or her own benefit during life; at death, the assets may be distributed to named beneficiaries, or perhaps kept in further trust for their benefit, as the trust creator will have provided in the terms of the trust. Assets properly titled in a living trust may help you limit or avoid probate. A living trust may also help provide for the management of trust assets should you become incapacitated, or simply when you do not wish to be responsible for the day-to-day management of the trust assets any longer. A successor trustee should be named to take your place at such time as you desire to no longer act as trustee, or at the time of incapacity or death. The same considerations for choosing an executor or personal representative should be used in the selection of a successor trustee.

Testamentary Trust or Trust Under Will 

A testamentary trust, also known as a trust under will, is created and funded based on the terms of your will and only takes effect upon your death. To be effective, a testamentary trust must pass through the probate process. This type of trust is not designed to provide for management of your assets while you are living, and typically does not offer the level of personal and financial privacy available with a revocable living trust. Hilliard Lyons Trust Company, LLC can serve as a trustee and successor trustee or as a co-trustee with other individuals or institutions for revocable or living trusts and for some testamentary trusts. We are also able to serve as agent for trustee should another individual be chosen to act as trustee and require assistance managing the trust’s assets. 

Other essential documents

  • Powers of Attorney: 
    A power of attorney is a legal document used to designate a party to represent you and to act on your behalf. The power may include handling business affairs and/or personal matters. This authority to act on your behalf may be immediate or contingent upon the occurrence of an event, such as your disability. A “durable power of attorney” is effective even if you later become disabled or incapacitated. Again, consideration of the person chosen to act in this capacity is critical to your wellbeing. 
  • Health Care Documents: 
    Some attorneys advocate the use of a separate health care power of attorney and/or a health care surrogate designation, especially if you want to designate one person to manage business decisions but would prefer to name another person to manage health care decisions on your behalf when you cannot communicate your wishes. Another essential document is a living will in which you express your wishes regarding life prolonging treatment should you be in a terminal condition and cannot communicate your wishes. Some attorneys also recommend that you also execute a separate document in which you designate an authorized representative for purposes of HIPAA, the federal law that governs the disclosure of confidential medical information; these provisions might also be included in a power of attorney. 

Working with an experienced estate planning attorney is strongly recommended. 

Laws governing wills and trusts vary from state to state and are constantly changing. Working with an experienced estate planning attorney who is familiar with the laws of your state is strongly recommended. Hilliard Lyons Trust Company, LLC is glad to review your personal financial planning matters and estate planning documents, however, we are not able to prepare wills, trusts, or other estate planning documents or give legal advice. This must be done by your legal counsel. 

Estate Planning