A proper estate plan is one of the most important gifts you can give your family.
Life is unpredictable, but an estate plan can provide you with some much-needed peace of mind that your loved ones will be cared for in the wake of an unexpected event.
However, only 33% of adults have documented end-of-life plans.¹ Those accumulating wealth need to understand the basics to ensure their assets are distributed according to their wishes.
With the help of Attorney Liz Drake, partner at Bob Goldman Law, we’re reviewing some of the most fundamental components of a well-rounded estate plan.
6 Essential Estate Planning Tools
There are several ways to craft an estate plan. The tools you choose will depend on your unique situation and the recommendations of your financial and legal advisors.
Beneficiary Designations
Life changes happen quickly. Updating your beneficiary designations to reflect across your estate plan when they happen is crucial if you want to maximize control over your assets after death. This is also the simplest estate planning tool to use when it comes to directing assets.
You may find the option to designate beneficiaries on certain accounts and policies including:
- Retirement accounts, such as 401(k) or IRAs
- Life insurance documents
- Employee benefits
- College savings plans
- Brokerage accounts
- Bank accounts
It’s important to note that your beneficiary designations supersede what’s written in your will, meaning they should be updated frequently or as you experience life changes (divorce, death, birth of a child or grandchild, etc.)
Last Will and Testament
A will is a legal document explaining how a person (or “testator”) wants their assets distributed after death. Otherwise known as a “last will and testament,” this document outlines specifics, like who will inherit your property, how your assets will be distributed, and who will receive your personal items and family heirlooms. Even if you plan to have your estate distributed via trust or beneficiary designations, a will has the important job of designating who will care for minor children.
Should you die without a will and assets left to your estate, the state would be responsible for distributing assets according to its unique laws and making decisions about guardianship for children. Unfortunately, that could mean a testator’s final wishes may not be granted.
Three people are involved in executing a will:
- Personal Representative: Usually a spouse, adult child, relative, or friend. This person is responsible for administering the estate of the testator after their passing. This person may also be referred to as an executor or agent. Titling varies by state.
- Guardians: People responsible for your minor children after your death.
- Beneficiaries: Individuals or organizations that receive specific assets.
Creating a will can be an emotional experience. But ensuring your assets are handled according to your wishes—not state laws—protects your loved ones and leaves nothing to chance.
Living Wills & Healthcare Directives
The ultimate goal of estate planning is to communicate your wishes in the event you are unable to while still living. Healthcare directives can help you do so.
One of the most popular documents related to estate planning and health care is the health care proxy form. This document names a healthcare agent who can make medical decisions on the patient’s behalf. Typically within the form, but sometimes stand-alone, is a HIPAA release form. Providing your agent with a HIPAA release permits them to have access to past and current medical history so they can make an informed decision for your care. The health care proxy and HIPAA forms are both honored legal documents.
You can also create a living will (different from a last will and testament), which specifies your healthcare preferences. These preferences can be broad (which may be the case if you’re healthy and simply being proactive) or specific (which would be more likely amid a diagnosed medical condition). Attorney Liz Drake reminds us that while helpful, “Living wills are not binding in Massachusetts. They are considered informal guidance to the health care agent, who will have the discretion to apply the provisions to the facts that exist at the time. In addition to signing a living will, specific wishes and preferences should be thoroughly discussed with health care agents and family members in advance.”
Durable Power of Attorney
If you grant someone durable power of attorney (DPOA), they can make decisions and operate on your behalf as soon as the documents are signed. There is another type of POA, called “springing” power of attorney, which only goes into effect if certain conditions are met.
With a springing power of attorney, you may have to experience a medical condition and receive a doctor’s sign-off before it can go into effect, for example. While this may still be better than having no POA at all, it often causes delays and otherwise makes it difficult for the designated individual to begin acting on your behalf.
Either way, power of attorney is an estate planning powerhouse, and you may want to consider establishing it whether you think you’ll ever need it or not.
Your agent will be able to handle certain financial tasks and decisions on your behalf, depending on what you give them permission to do. It’s important to distinguish that power of attorney does not have to provide blanket, all-access power to everything relating to your financial life (or medical decisions, as is the case with a healthcare proxy). Rather, you can customize a POA to fit your needs. For example, your agent may be able to conduct a home sale on your behalf, but not manage your bank accounts (or vice versa). You can also create POAs at the institutional level, for instance, allowing someone to act on your behalf at just your local bank. Custodians are able to provide you with a form to accomplish this.
A POA is not a replacement for your other estate planning documents, like a will or trust—namely because a POA ends at death. At that time, the personal representative of your estate takes over.
With that in mind, we asked Liz her opinion on choosing who would be named to these various roles. Should they all be different? The same? Should multiple people have the authority to ensure a certain check and balance system? While everyone’s circumstances and family dynamics are different, Attorney Drake says, “Typically, it makes sense to name the same person to act as your DPOA, personal representative, and successor trustee given the responsibilities are similar. The DPOA may already have acted within their role during the person’s life, so it would be efficient for them to administer the estate after their passing. And likely you would want that same person to oversee a trust as well. Potentially for something specific, such as a one-time limited business dealing or property closing requiring a limited power of attorney, it could make sense to choose a different person on that specific matter. In terms of naming 2 or more people as agent under the power of attorney, I typically recommend specifying that they can act together or alone. That way, if someone is unavailable, the other can still act on your behalf. Finding matching availability and obtaining multiple signatures for each financial matter can otherwise be administratively challenging. Lastly, it’s advisable to review your Power of Attorney every few years or at the time of any major life event to ensure the named agents and listed powers are still appropriate. Banks and financial institutions are typically more receptive to accepting recent DPOAs vs those that are 5+ years old.”
Trusts
A trust is a legal document that allows a third party (or “trustee”) to hold assets on behalf of a beneficiary. The trust dictates how long the trustee holds the assets and when the beneficiary can receive them.
Establishing a trust lets you control what your beneficiaries inherit and when. For instance, you can stipulate that your child receives a percentage of their trust at different ages or when they achieve certain milestones—like graduating college, getting married, or having children.
Several types of trusts are used for various purposes. They fall into two main categories: revocable and irrevocable trusts.
- Revocable trusts, otherwise known as “living trusts,” allow grantors to maintain control of their assets during their lifetime. They can change or revoke any terms within the trust at any time. They also help avoid probate—the legal process that looks to your will to determine how to distribute assets left to your estate. While living, the grantor typically includes any trust income on their personal return. At the grantor’s passing, this trust will be countable toward the grantor’s estate when calculating any potential estate taxes. To say it plainly, the revocable trust from a tax perspective is an extension of the grantor.
- Irrevocable trusts are very different in that they are not overseen by the grantor and terms cannot be as easily changed. Irrevocable trusts are not subject to probate, are generally considered removed from the grantor’s estate, and can be seen as their own entity for tax purposes (but not always, so best to get into the fine details with an attorney). These can be very useful for asset protection purposes (Medicaid, divorce, spendthrift, estate tax, etc).
We deliberately mentioned how each of these trusts differ when it comes to trust assets being includable in the grantor’s estate at death. At your passing, an estate tax is calculated based on the fair market value of your assets and is paid by the estate before assets are transferred to beneficiaries.
In 2024, the federal estate tax only applies to estates that exceed $13.61 million in value per individual. And this exclusion is portable between spouses (meaning when the first spouse dies the survivor can simply file a form to retain their exemption + their own.) Unless Congress makes this exemption limit permanent, it will regress to $5.49 million—or roughly $7 million adjusted for inflation—in 2026. Any amount over this limit will be taxed at a rate ranging from 18% to 40%.²
Estate tax can be imposed at the state level, but exact laws vary by state. As a Massachusetts resident, there is a state-level estate tax with a $2M exemption. But unlike Federal estate tax, there is no spousal portability without the intervention of a trust. To dive into the details about recent changes to Massachusetts’ estate tax law and more, read here.
The type of trust you choose will depend on how much control you wish to maintain over your assets, the tax you’re willing to pay on your estate, and the laws in the state where you live. And keep in mind that just because a trust has been drafted, there is still more work to be done – funding the trust! This step can be easily overlooked or misunderstood. It’s generally the client’s responsibility to ensure proper trust funding as an attorney is not in a position to implement changes at the account level, and advisors would need to be given proper direction to help.
Attorney Liz Drake says, “Once you have your documents in hand, update your beneficiary designation and account titlings as recommended by your attorney. Joint, bank, and non-retirement investment accounts may need to be moved into the trust or have their beneficiaries updated to the name of the trust. For retirement accounts, typically a spouse is named as a primary beneficiary to maximize income tax deferral. But if not married or for contingent beneficiaries, it may make sense to name the trust. As long as the trust is properly drafted, non-spouse trust beneficiaries get the same 10-year window to distribute retirement accounts as if the individuals were named directly. This wasn’t always the case which is why naming directly has traditionally been popular. Prior to the SECURE Act passing in 2020, non-spouse beneficiaries could pull from an inherited IRA over their lifetime, known as a stretch IRA. With that option eliminated, the benefits of naming the trust instead of beneficiaries directly for non-spouse individuals can offer creditor protection, protections from sharing in a divorce, plus shield the assets from being counted toward a secondary estate tax at the beneficiary level. A trust needs to be written with certain provisions on how retirement assets are handled, so working with an attorney is critical to get the most value of this estate planning strategy.”
Making Inter Vivos Gifts
Thinking about gifting to loved ones during your lifetime? This is called making “inter vivos” gifts, and by far one of the most popular estate planning strategies utilized and recognized.
Many people prefer to gift some of their wealth to loved ones while they’re still alive so that they can witness the impact of their gifts firsthand. Plus, supporting a loved one during pivotal transitions allows grantors to make a significant difference and be a meaningful part of their lives.
You may gift property, assets, and cash within the annual gifting limit of $18,000 per individual beneficiary in 2024 and $19,000 in 2025. The recipient does not owe taxes on the gift within these limits. And the giftor does not need to report having given the gift. However, gifts exceeding these limits must be reported on a gift tax return, and will be deducted from your lifetime gifting and estate tax exemption, currently at $13.61 million. This figure accounts for gifting and estate taxes together.³
Create Your Estate Plan with Confidence
WealthCounsel’s estate planning awareness survey reported that more than half of respondents struggled to find an advisor they trust to create an estate plan.
As you can see, collaboration with both a financial and estate planning professional can help you identify and implement various estate planning strategies. For instance, Wingate may run an analysis on the affordability of an annual gifting strategy. They can also review account-level beneficiary designations to ensure they’re updated and filed. An attorney may focus more on document creation, deeding properties, and overall trust funding strategy. All hugely important to have a well-rounded estate plan.
Schedule a call with Wingate Wealth Advisors to discuss how we can help collaborate with your attorney on your estate plan today.
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