Estate Planning & Wealth Transfer
At HBKS® Wealth Advisors, we believe estate planning is a critical component in a family’s overall financial plan. We define estate planning as the best way to transfer wealth to family members, charitable organizations and others, during your life as well as at death, with minimum shrinkage from taxes and various probate expenses. Our clients work hard throughout their lives to accumulate and preserve wealth. Passing on what they’ve accumulated in the most efficient way to their heirs – and in many cases, charities that they care about – is of the paramount importance.
Prior to recommending any specific estate planning tools or techniques, your HBKS® wealth advisor will talk with you about your estate planning goals and objectives. To help you design an effective estate transition plan, it is important that your advisor understand your intentions as to whom should inherit your wealth and how it should be divided.
It is also important for your advisor to understand your family’s philanthropic intent: the nonprofit or charitable organizations that should benefit from your estate plan. In many cases, families hope to leave a legacy to religious, educational or other charitable institutions, benefitting those organizations for generations to come.
There are also special considerations to discuss and consider incorporating into your estate plan. Some estate plans include provisions for caring for minor children and how children’s financial affairs will be managed until they become adults. Some families have dependents with special needs that require customized planning. Further, many families are concerned about an adult heir’s ability to prudently handle financial affairs due to factors like substance abuse or mental disability. Concerns extend to providing for a surviving spouse, or making certain that adult children or grandchildren from a previous marriage are treated fairly in the estate planning process. HBKS® wealth advisors are experienced with what can be extremely sensitive issues and the associated client conversations.
Estate planning can also involve the transfer of a business to the next generation of owners and managers. These conversations typically involve complex business transactions and can require addressing sensitive family relationship issues. Frequently, families want to transition the business to the most deserving, capable future leaders while treating other children fairly.
Throughout the estate planning conversation and process, your HBKS® wealth advisor works closely with your other professional advisors, such as your estate planning law firm and your tax advisors. We believe in a team approach and can help coordinate the efforts of these other professionals.
A variety of gifting strategies and wealth transfer tools exist to help you distribute assets to your family and other beneficiaries. Your HBKS® advisor may use one or more of these techniques to help you accomplish your estate planning goals, including avoiding probate and reducing income and estate taxes:
Wills: Distributing Assets to Beneficiaries
A will is a legal document directing the distribution of assets to family members and other beneficiaries. If you die without a will, state law will determine how your assets will be distributed.
Although wills do not help avoid probate (in fact, to be effective, your will should be filed in probate court), they are still an important part of estate planning. You can work with your attorney and financial advisor to create or revise your will to satisfy your objectives, such as naming the executor of your will or designating a guardian for your dependent children.
Annuities, life insurance, IRAs and retirement plans are some of the ways to designate beneficiaries. The assets are automatically distributed to that beneficiary upon your death, which means they generally avoid the probate process. A charitable beneficiary of qualified plan assets may also avoid income tax normally levied on the estate.
Note: Beneficiary designations take precedence over any other instructions you provide in a will or trust, an important consideration in developing an estate plan.
Gifting to Individuals and Trusts
Gifting allows you to transfer assets to children or other beneficiaries during your lifetime, thereby reducing your taxable estate. Sophisticated gifting techniques can also help you:
- Provide tax-favorable income for yourself or your heirs
- Leverage your annual exclusion gifts by using a trust to cover estate taxes
- Pay for a child’s education using tax-free growth funds
We can help you identify maximum amounts, so-called “annual exclusions,” that can be gifted tax free per person, per year under current law. Any gift that exceeds such an amount will require you to file a gift tax return.
Note on medical and education expenses exceptions: If you pay someone’s medical or education expenses directly to the provider, the gift is not included in your annual exclusion amount. For example, if you pay $25,000 for your grandchild’s tuition directly to the school in 2012, you can still gift up to $13,000 tax free to that child (or $26,000 as a combined gift from you and your spouse).