The prudence of estate planning extends far beyond the question of “what happens to my money, assets, and belongings at the end of my life?” Estate planning facilitates shrewd planning and management of one’s life and resources, protects the interests and assets you’ve worked so hard to build, reduces the impact of taxation and risk, and establishes a strong foundation as you move forward from this point in your life. It doesn’t matter if your situation involves a home, income(s) and children, a small business, or a substantial portfolio of international interests and investments. Estate planning will pay for itself multiple times over, while establishing essential protections and provisions for the inevitable “what ifs?” of life.
Key takeaways about The Prudence of Estate Planning
- Estate planning is often unfortunately deferred due to the “business” of life, the perception of the complicated financial and emotional substance of the estate planning process, and a perceived lack of urgency.
- An effective estate plan protects existing and future income and assets, while structuring investments and transactions to reduce the impact of taxation as well as risk.
- The cost of estate planning is minimal when compared to the risks associated with unprotected assets, the expense of probate, and tax savings.
Is It Time to Get Started?
The prudence of estate planning extends far beyond issues of money, taxation, providing for your spouse, child(ren), and loved ones, or establishing a legacy that will continue after your passing. It’s about being an intelligent and effective steward of the resources and opportunities you’ve been given, while making sound decisions to protect all that you’ve worked so hard to develop. It’s about identifying and reducing potential risks, and structuring your efforts to minimize the impact of taxation so that you may keep more of what you have worked so hard to make.
If you have any equity in your home, retirement accounts, savings, investments, or a business interest, it’s past time to begin the process of estate planning. Are you married or partnered with a significant other? Do you have children? Do you have causes or beliefs that are important to you? If so, it’s time to invest a little time in providing for and protecting the people and things you love and care about most, not to mention the value of the time you are investing now and in the future.
The First Step
Would it surprise you to learn you’ve already taken the first step? You’ve recognized the need to provide for and protect what’s most important to you; now, let's begin with a few objectives. What’s most important? Is it providing for your loved ones in the event of an unexpected development or crisis? Is it reducing the impact of taxation and other drains on income so that you get to keep more of it as you go? Do you want to secure the nest egg you’re building to protect it from creditors and predators?
California, and most states, provide specific protections for a spouse and children if a will or estate plan doesn’t exist when a person loses their life. California is a “community property” state, and a surviving spouse will typically inherit all assets obtained during any marriage. If there are “separate assets” (assets acquired before the marriage or as a properly structured gift or inheritance), these will be divided between the surviving spouse and children based on the number of children. If there is no spouse or children, the estate of a deceased individual in California can pass to one’s parents, siblings, or relatives, based upon specific “priorities” established under California’s Probate Code.
The statutory fees for probate in California begin with a) 4% of the first $100,000 in asset value, b) 3% of the next $100,000, c) 2% of the next $800,000, d) 1% of the next $9 million, and e) 0.5% of any remaining value up to $25 million.
It’s important to note that probate fees are based on an asset’s value, not its equity. It costs substantially more to take $100,000 in assets through probate than it does to pay for most basic estate plans. If you own a home, the cost of an estate plan is often less than 10% of the cost of an average probate case. Not to mention the year or more it will take to process a loved one’s asset(s) through the probate process.
Suffice it to say, a well-crafted estate plan pays for itself multiple times over in probate savings alone, here in California, and in the vast majority of states in the U.S. The prudence of estate planning begins with the substantial amount of money it will save you and your loved ones now and in the future.
Protecting Your Assets and Minimizing The Impact of Taxation
What assets do you presently own? Do you own your home? Do you have more than one bank account? Do you have retirement or pension assets? Do you have life insurance? Do you have investments or business interests? What possessions or collections are important to you?
The prudence of estate planning provides essential protections to prevent creditors or even predators from accessing, attaching, or taking the assets you have already built, as well as those you will develop in the coming months and years.
Careful planning allows you to structure your affairs and transactions in a manner that preserves and protects these assets, while legally reducing exposure to taxation. The timing of gains and losses can be structured to shift the resulting tax liabilities, thereby reducing net taxation. The structure of a business transaction or acquisition will have substantial tax implications for both the seller and the buyer. How should each deal be structured to accomplish your objectives and best interests, while reducing the impact of resulting taxation?
Offshore investments can provide attractive returns to prudent investors. However, there is a substantial difference between the GAAP accounting standards here in the United States and the International Financial Reporting Standards. A taxable event or trigger under the U.S. tax code is often completely different than how an investment will be taxed in Europe, Central or South America, or the Far East. An effective estate plan helps guide these crucial decisions, providing a framework to facilitate your goals and objectives while protecting the transactions you conduct and the returns you generate.
What to Look For In An Estate Planning Partner
What should you look for in an estate planning partner? Most modern estate plans involve a trust (or multiple trusts), important legal documents such as an Advance Health Care Directive (AHCD), insurance, and an element of tax planning.
Look for a single-source partner who can integrate estate planning, tax, and business legal services. This will ensure you have a strong initial estate plan, as well as access to the experience and expertise required to update and modify existing plans as your situation continues to develop and grow. Your estate plan should consider and plan for the impact of taxation, providing specific strategies to reduce tax exposure. This is especially true for licensed professionals, offshore investors, U.S. expatriates, and those with business interests.
Extra value and credibility for your estate planning partner if they offer accounting as part of their available services. The IRS requires larger businesses (with annual revenues exceeding $25 million) to use accrual accounting, as do those that adhere to the U.S. Generally Accepted Accounting Principles (GAAP). Accrual accounting establishes a clearer view of the company’s overall health and financial value by recording transactions as they happen, instead of when cash (payment) is exchanged. Integrated accounting services can provide added value and ease, especially for those with foreign investments and business interests.
The Fruit of the Prudence of Estate Planning Delivers Measurable Benefits Now, and at Every Step of Your Future
How can one fully understand the prudence of estate planning? If you are serious about developing and protecting your businesses, assets, and/or wealth, an estate plan is a foundational pillar of life. Here in California, and most states, the simple cost of taking the family home or assets through probate far exceeds the cost of any estate plan.
Estate planning saves you a substantial amount of money. It establishes the vehicle(s) necessary to reduce risk and protect your home, assets, business interests, and investments. Effective estate planning reduces tax exposure while measurably increasing the value of the assets you hold, especially business interests.
It’s a global world, and international business owners, investors, and U.S. expatriates alike must navigate a series of monetary and tax-related risks to reap the increased profitability these investments often offer. Effective estate planning establishes the documentation, directions, and process for managing any unexpected financial or health development in the future. It creates a safe and protected foundation to safeguard your assets from all risks, while reducing exposure to tax in every venue.
The cost of estate planning is minimal when compared to the savings provided by avoiding probate alone. The savings are compounded by reduced taxation and the increase in the value of your business holdings and other assets. The peace of mind, security, and genuine strategic and financial value of a thorough, well-conceived estate plan are the foundation of a successful and profitable life.
The time you invest is not as overwhelming as it may seem at the outset. The value of that time will return to you multiple times over throughout the rest of your life, and the lives of your family, loved ones, and beneficiaries.
