As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially. The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact. 

Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for. The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it. So, instead, let's talk about another option that may be attractive to some people. 

The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes. Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets. The good news is that you get the care you need. The bad news? You lose what you have worked so hard for. So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play. 

This trust has to be set up the right way

First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid. This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments. The things to note with this trust is you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets. 

It's important to work with an estate planning attorney who specializes in this area. For our clients, we have an attorney who meets with them at our office to ensure this gets done the right way. 

You also want to make sure that you’re not getting sold this trust if you do not need it, because not everyone needs it. If you don’t have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you. Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that’s why it’s important to find an attorney that you can continue to work with to make changes to these trusts as needed. 

The attorney we work with meets with our clients periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future. 

Setting one up can be costly

The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000. The attorney who works with our clients does it for a lower amount since we do not take a referral fee, and we have an exclusive relationship. You’ll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing. 

Other planning advantages and opportunities

A Medicaid asset protection trust can also lead to other advantages and opportunities in other areas of planning. For example, we can also use this trust to help plan for estate taxes. 

Estate taxes may not be a concern for many people, considering the current high threshold before it kicks in ($13.61 million for 2024). However, the threshold is likely to be lowered in the future. It has, in the past, been as low as $1 million or less, so it’s possible that if your net worth is more than $1 million, you could pay a 40% tax on everything above that in the future. 

A Medicaid asset protection trust could help you protect some of those assets by getting them out of the estate so they’re not subject to that estate tax. We do this for many of our clients who have been diligent savers. 

Also, with trusts, you can be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them. For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or if you wanted a minor child to not get the money until the age of 25, then you could do that also. You could also ensure that if there were a divorce or one of your family members died, that the money stayed in the family. 

Those can all be reasons why setting up a trust can make sense. We work with many people in or near retirement who have been diligent savers, but only about half of them need trusts. That's why it's important to do your due diligence and see if this makes sense for your specific situation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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But people also recognize this: No one wants to give Uncle Sam more money than necessary, especially since all of us have our own uses for that money.

That’s where good tax planning comes into play. With the right strategies, you can reduce your income tax bill, put fewer dollars in Uncle Sam’s pocket and keep more in yours.

That can be especially beneficial for retirees, who need to make sure their money lasts the rest of their lives.

Let’s look at three ways you can give Uncle Sam less so you can keep more.

1. Carefully consider which assets to leave to beneficiaries.

It’s nice to be able to bequeath something to your children, grandchildren or others after you are gone. But as you make plans to do so, keep in mind the income tax ramifications, both for you and for your heirs. With the right moves, you both can avoid taxes.

For example, if you have assets such as stocks or real estate that have appreciated in value since you purchased them, you should consider the advantages of a “step-up in basis.” If you were to sell those assets now, you would pay capital gains taxes. on whatever gains you have made. Leave these assets to your heirs, though, and the situation changes because the step-up in basis rule comes into play. Under that rule, there is a restart on the date from which the gains are measured. Instead of being calculated from when you purchased the asset, the gain is determined from the time your heirs inherited the asset.

Let’s say that many years ago, you bought several shares of a stock for $10,000, and today those shares are worth $50,000. If you have the option, this might be a good candidate to leave to your heirs rather than sell right now. If you sold the stock, you would owe capital gains tax on the $40,000 gain. But if you leave the stock to your beneficiaries, their starting point for capital gains is $50,000 (or whatever the value is at the time of your death) because of the step-up in basis. If they sell quickly, they likely would owe little or no capital gains taxes.

2. Have a strategy to pay taxes efficiently.

But, of course, leaving assets to beneficiaries means someone else has to pay taxes after you are gone.

You are paying taxes in the here and now. As you do so, you need a strategy to make sure you are paying them in the most efficient manner and that you are taking advantage of anything in the tax code that allows you to pay less.

That begins with capitalizing on the income-tax deductions available to you. About 90% of taxpayers use the standard deduction, which has risen over the years, especially after the Tax Cuts and Jobs Act of 2017 was passed. The deduction is even higher for those who are blind or who are 65 and older, though you have to be sure to check a box on your 1040 form and add on the extra amount.

In the past, more people Itemized their deductions, and that is still an option. It’s just difficult for the average person to come up with enough deductions to bring the itemized total higher than the standard deduction. But if you can itemize and claim an even greater deduction than the standard, you want to go that route.

Among the tax deductions that could help you get to the appropriate total are mortgage interest, medical expenses and charitable contributions. Make sure you deduct only what is allowed, though. For example, medical expenses are deductible only when they exceed 7.5% of your adjusted gross income.

Another way to be efficient with your tax payments is to keep an eye on the income tax brackets and the possibility of dropping into a lower bracket. For example, if a married couple filing jointly can reduce their taxable income to $89,450 or lower, they move out of the 22% tax bracket and into the 12% bracket. (Extra deductions can help you move from one of the higher tax brackets as well, but the gap between the 22% bracket and the 12% is the largest.) It’s worth noting that even when you are in the higher bracket, all of your income is not taxed at the higher rate. Only the portion of your income that exceeds a certain threshold is taxed at that higher rate.

3. Make sure investments are in the proper accounts.

One other way to pay taxes efficiently is to make sure your investments are in the appropriate accounts that will be most likely to produce the desired results. If you aren’t careful, you can incur unnecessary taxes.

Essentially, the accounts you might have money invested in can be broken down into two types: accounts that are taxable and accounts that come with some sort of tax advantage.

Taxable accounts include brokerage accounts, where you might hold stocks. The upside with these is there is no age restriction or other restriction on getting access to your money. You do pay taxes, but if you have held the asset for more than a year, it is considered a long-term capital gain and is taxed at a lower rate than regular income.

Tax-advantaged accounts are those with investments that are tax-deferred, such as a traditional IRA or 401(k), or that are tax-exempt, such as a Roth IRA, where you pay the taxes now but not when you begin withdrawing money. Although these accounts give you some tax advantages, one tradeoff is they have rules on when you can withdraw money and penalties if you break those rules.

So where to put your money?

That comes down to the type of investment. As much as possible, you want investments that are subject to little or no taxes in your taxable accounts. Investments subject to a higher tax rate should go into the tax-advantaged account.

A good financial professional can help you determine the best investment accounts for your individual situation. That person can also help you find other ways to make sure you are paying taxes in the most efficient manner possible.

By taking the right measures, you will still pay what you legally owe — but not more than required.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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Sandra Batra, 56, created a binder to organize all of her father’s documents after he was stricken with cancer in 2011. Batra says the project helped her and her mother easily locate her father’s important documents while he was in the hospital. 

After her father’s death in 2012, Batra decided to turn her idea into a business, LifeLink Consulting, which helps clients organize estate-planning documents into a binder or flash drive. Batra also gives clients blank worksheets they can use to provide other details, such as who they want to care for them and their end-of-life wishes. Her online course costs $99. 

To organize your own records, you can use an accordion file or binder and divide the documents into different categories, such as estate planning, life insurance policies, property titles and investment statements. You should also include categories for health insurance, long-term-care insurance, and bank account and credit card information. That way, your family will have the details they need to pay medical bills if you’re hospitalized for a long period. 

Use Microsoft Word or Google Docs to write down additional details, such as who you want to take care of your pets, a list of subscriptions and memberships, and passcodes to any home security systems or online accounts. Once you draw up the documents, print them and place them in your binder (you can also store them digitally — more on that below). 

Where to keep your documents

Store your documents in a secure area, such as a locked filing cabinet or fireproof safe in your home. Make sure your loved ones know the location of your cabinet or safe, and give them any keys, combinations or codes required to access it. 

If you don’t want to keep the documents in your home, you can entrust them with your estate lawyer, says George Taylor, estate attorney with Brinkley Morgan. 

“Your estate attorney can store original documents, like your will and titles to your house and car. Then you and the executor of your will can have copies,” he says. 

You can put copies of your will and other important documents in a safe-deposit box, but it’s usually not a good idea to keep originals there if you’re the sole owner. After your death, the bank will seal the safe-deposit box until an executor can prove he or she has the legal right to access it. That could lead to long and potentially costly delays before your will is executed. 

Digital options for financial paperwork

You should keep original, paper versions of your will, power of attorney and other key estate-planning documents. But if you’d like to create a backup of your paper documents, consider using a flash drive, which you can plug into your computer’s USB port, to collect them all in one place. 

Alternatively, you can use a cloud storage system, such as Microsoft’s OneDrive or Apple’s iCloud. OneDrive’s free version gives you 5 gigabytes of cloud storage. Its family version, which allows up to six individuals to share and access documents, costs $99.99 a year. 

Apple’s iCloud Drive provides 5GB of free storage. For 99 cents a month, you can upgrade to iCloud+, which provides 50GB of storage, and you can share it with up to five family members. Whichever option you choose, protect documents in the cloud by creating strong passwords and adding two-step verification. 

Your heirs will need passwords to log in to your online accounts, so make sure they have easy access to them. You can write them down in a document to store in your binder or use a secure password-management tool. A family membership to 1Password ($4.99 a month after a two-week free trial) offers shared account access for up to five family members. With Bitwarden, you can share your account with one other person free. Or sign up for a family membership ($40 a year), which allows access for up to six people. 

How to make updates in paperwork

Batra recommends updating your documents each time you have a life change. For example, you may need to alter the beneficiaries in your will or life insurance policies if you get divorced or have grandchildren, and living trusts should be updated to reflect the purchase or sale of property included in the trust. Even if you haven’t undergone any big changes, check your documents at least once a year to make sure the information is current. 

If you entrusted your estate attorney with your documents, he or she can also help you keep them up to date, Taylor says. Ask your estate attorney to send you an annual e-mail or letter reminding you to update your information and make sure the right person is still in charge of your affairs, he says. 

Key documents to share with your family

Make sure to include the following information in a binder or digital file:

• Will or trust 
• Powers of attorney for finances and health care 
• Organ donation form 
• Living will 
• Letter of instruction for your heirs 
• Beneficiary designations 
• HIPAA release (allows health care providers to share information about you with authorized individuals) 
• Bank and financial statements 
• Real estate deeds and titles 
• Retirement-account documents 
• Life insurance policies 
• List of important personal property, such as jewelry and artwork, and estimated values
• Funeral instruction

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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An irrevocable trust agreement must be designed, drafted and implemented to deal with two primary categories of taxes: 1) transfer taxes, such as gift and estate taxes, as well as the less common generation skipping transfer tax, and 2) income taxes, such as earned income taxes, income taxes on investment or capital gains taxes, which are income taxes on property appreciation after the property is sold or exchanged.

Either the irrevocable trust or an individual will pay taxes on all trust income. Trust income includes rents on real estate, profits produced by trust investments, the appreciation income from property sold or distributions of assets from the trust. Under the comprehensive tax rules, all trust income must be reported on either the trust income tax return (at trust tax rates) or on the tax return of the trust maker or beneficiary (at individual tax rates).

Putting this into different words, irrevocable trusts can be set up so that the trust maker no longer pays income taxes, and the taxes are instead paid by the trust. Note that the income tax rules for non-U.S. residents and non-U.S. citizens will vary quite a bit from the income tax rules we are discussing here.

Trust tax rates are much higher than individual tax rates

Why wouldn’t everyone want to set up an irrevocable trust so that they don’t need to individually pay income taxes any longer? The reason why most taxpayers are better off to pay taxes individually rather than having a trust pay income taxes is because trust tax rates are often much higher than individual tax rates.

The higher trust tax rates are due to the fact that an irrevocable trust has only hundreds of dollars in standard deduction, and an irrevocable trust pays the highest federal tax rate after just a few thousand dollars of income. Unless the irrevocable trust maker is already paying taxes at the highest marginal individual tax rate, it is almost always less expensive for the trust maker to keep on paying the trust income taxes.

Example. A trust maker with rental properties reads that they can stop paying taxes themselves by forming a trust. The trust maker asks an attorney to set up a trust with rental property LLCs so that the trust will pay taxes, thinking that the trust and LLC structure will save a lot of taxes. When the attorney calculates how much the trust would pay in taxes compared to the trust maker paying individually, the trust would pay more than two times more taxes! The attorney advises the trust maker that instead of having the trust pay taxes, the trust maker should set up a trust with “grantor” provisions so that the trust maker will continue paying taxes at the trust maker’s lower tax rates.

The fact is that most people would save on taxes by continuing to pay income taxes on the irrevocable trust income themselves, rather than having the irrevocable trust pay the income taxes at trust tax rates. The feature in an irrevocable trust that permits the trust maker or another person to pay trust income taxes is known as “grantor trust status.”

As a general rule, if an irrevocable trust is treated as a grantor trust, this means that an individual (typically the trust maker) will be treated as the owner of the trust income or principal, and the individual needs to include on their personal tax filings all items of trust income, deductions and credits as though the individual had received them personally — even if the trust didn’t distribute the income to them personally and the income stays in trust. Where several different people are treated as owners of different parts of the trust income or principal (multiple grantors), the taxes will be allocated between the different people.

It is important to note that we are primarily discussing federal income tax here, though many (but not all) state income taxes and state capital gains taxes follow the federal income tax laws.

To be certain we are clear, I’ll again point out that trusts deal with both income taxes (including earned income, investment income, losses, deductions and capital gains income taxes), and trusts also deal with transfer taxes (estate and gift transfer taxes, as well as generation skipping transfer taxes). On the transfer tax front, a trust may be designed to exclude assets from the trust maker’s gross estate (referred to as a completed gift trust), though the very same trust can be designed so that the income of the trust is taxed to the trust maker (grantor trust status).

Grantor trust rules are part of the tax code

The grantor trust rules are part of the Internal Revenue Code (IRC), which are found in Title 26 of the United States Code, the U.S. federal laws passed by Congress. More particularly, the grantor trust rules are found in Sections 671 to 679 of the IRC. The grantor trust rules generally provide that if the trust maker (or another person) has certain powers over the trust that are found in IRC Sections 673-679, the trust income will flow through to be taxed at the trust maker’s personal tax rates — and personal tax rates are almost always lower than trust tax rates.

A few examples of the powers that a trust maker can keep over the trust, so that the trust qualifies for grantor status and trust income is taxed to the trust maker, include generally: powers to invest (IRC 673); powers to reacquire trust assets, i.e. buy back trust property (IRC 673); powers to replace the trustee (IRC 675); powers to substitute property in the trust (IRC 675); power to use trust assets (IRC 677); power to veto distributions (IRC 678).

This sample list of grantor trust rules is very incomplete, and over time, billions of people with billions of needs have created millions of trusts with endless permutations of trust powers. This has caused the IRS, lawyers and tax court judges to spend countless hours determining whether bespoke and customized trust powers will cause trust income to be taxed to a grantor (usually the trust maker) or whether it should be taxed to the trust.

Complicating the matter of grantor trusts is the fact that some of the same trust income tax grantor powers will also cause a trust to be included in the gross estate and/or taxable estate of the trust maker. Again, estate tax is a different tax regime than trust income tax. For example, the power to revoke or amend the trust, a grantor trust power under IRC 676, will also cause a trust to be included in the grantor’s gross estate under a few different sections of the IRC (IRC 2036 and IRC 2038). In other words, a trust maker who retains the power to revoke or amend a trust (a revocable trust) ensures not only that the trust income is taxed to the trust maker, but also that the trust assets will be included in the trust maker’s gross estate.

Example. A trust maker forms a trust for a beneficiary, and the trust maker retains a “reversionary interest” under IRC 673 where the trust maker (or the trust maker’s estate) has the right to get back all of the trust property after the beneficiary dies. This grantor trust power will both cause the trust maker to be treated as the grantor for income tax purposes, and the trust property will also be included in the trust maker’s gross estate. The trust maker is happy with both tax results because the trust maker’s income tax rates are lower than trust income tax rates, and the trust property will get a step-up in basis by inclusion in the trust maker’s gross estate, although the trust maker will not owe any estate tax because the trust maker has adequate exemption from estate tax so that the trust maker’s gross estate is not taxable.

People who don’t have millions in wealth won’t pay estate taxes on their gross estates anyway, so the inclusion in the gross estate caused by grantor trust powers to amend under IRC 676 isn’t a problem at all. In fact, revocable trusts are usually the most tax-efficient type of trust for most people, who pay lower taxes individually compared to the higher trust tax rates, and a revocable trust also ensures that the trust property will qualify for a step-up in basis when the trust maker dies, under the capital gains rules of IRC Section 1014.

Because revocable trusts are both income tax and capital gains tax efficient, and revocable trusts are excellent for estate planning, revocable trusts are the most common type of trust. However, revocable trusts do nothing to protect assets, and revocable trusts don’t remove assets outside of the gross estate for people who have some wealth and need to avoid the estate tax.

Example. A trust maker engages an attorney to set up an irrevocable trust with the objectives of protecting assets and to avoid estate taxes on their estate. The trust maker has low tax basis in rental properties because the rentals were purchased 30 years ago when properties were considerably less expensive. The trust maker’s gross estate ( a concept similar to total net worth) is $5 million. The attorney advises the trust maker to form an irrevocable asset protection trust to hold the LLCs. The attorney drafts the trust to include provisions so that the trust maker retains grantor powers to pay taxes on the rentals by retaining rights to borrow against the rentals. The attorney also drafts the trust with provisions so that the trust maker retains rights to use trust income. When the attorney and trust maker meet, the attorney explains that the trust powers drafted in the trust not only cause the trust maker to pay taxes on the trust income — at income tax rates much lower than the trust would pay — but the powers also cause the trust-owned rentals to be included in the gross estate of trust maker. The trust maker is surprised that the attorney didn’t draft the trust to exclude the rentals from their gross estate, thinking that because the assets are included in the gross estate, the trust maker’s beneficiaries will need to pay estate taxes. The attorney explains that even though the rental properties are included in the trust maker’s gross estate, the trust maker has significant estate tax exemption, so the beneficiaries will not owe any estate tax. More important, because the low-basis rental properties are included in the gross estate, the inclusion in the estate will qualify the low-basis rental properties for a step-up in basis to the value at the time of death. This step-up in basis will save the beneficiaries significant capital gains taxes when the trust maker dies.

Why use a non-grantor trust vs a grantor trust?

Non-grantor trusts, defined as “complex” by the IRS, are trusts that owe income tax at the trust level and do not push out income and deductions to individuals. You may be wondering — if a non-grantor trust pretty much always pays the highest marginal tax rates, why would I want anything other than a grantor trust? Here is a scenario that illustrates when it could make sense to terminate the grantor trust powers and switch a trust to non-grantor.

Example. A trust maker has high income and is currently paying the highest marginal tax rate. The trust maker previously formed a completed gift trust that is outside of the trust maker’s gross estate, and the completed gift has grantor trust income tax provisions so that the trust income flows through to the trust maker. However, the completed gift grantor trust income is being taxed to the trust maker personally at their highest marginal tax rate. Put differently, the trust maker does not save income taxes by personally paying the trust income taxes. Further, a trust maker does not need or want to spend down the trust maker’s personal assets that are included in the trust maker’s gross estate — i.e. the trust maker’s personal assets are diminishing and/or the trust maker cannot afford to keep paying taxes on behalf of the trust. Because there is not an advantage (or even what could be a disadvantage) to having the trust maker continue to pay the trust income taxes since they are taxed at the highest rate anyway, and also because there is not an advantage for the trust maker to pay trust income taxes to spend down their personal assets (gross estate), the trust maker decides to terminate the grantor trust powers.

A trust maker will need to decide on a trust income tax provision (either grantor or non-grantor) that is best suited to minimize their taxes, depending on how much the trust maker earns. Keep in mind that a trust can include a renunciation of grantor trust provisions where the trust maker pays the taxes individually and later have the trust pay the taxes rather than the trust maker (or beneficiary) if that will lower the trust’s and individual’s total income tax burden.

However, a provision that terminates the grantor trust status must not be “toggled” on and off to avoid income taxes, or the IRS will challenge the trust. Additionally, a grantor trust can include a provision to reimburse the trust maker for the taxes they pay, though such a provision can pose gift tax risks or even estate tax inclusion risks if the tax reimbursement power is mandatory.

Another advantage of grantor trusts

Another powerful advantage of grantor trusts for estate tax planning is the ability of grantor trusts to reduce any assets remaining in the trust maker’s estate by having the trust maker pay the income taxes on trust income. If the property transferred into a trust is removed from the trust maker’s estate because the trust maker gave up possession, enjoyment and control over trust assets (a completed gift), rather than having the trust pay income taxes with trust property, the trust maker can pay the taxes for the trust. Using the grantor trust provisions to have the trust maker pay taxes on the trust property is the functional equivalent of the trust maker transferring more property into the trust.

Grantor trusts have been on the “green book” tax agendas of the IRS and several U.S. presidents who are keen to take away the powerful advantages that grantor trust status provides. Keep in mind that revocable trusts are the most common type of trusts, and revocable trusts are always grantor status. No one is trying to do away with revocable trusts, and the grantor trust status that is automatically afforded to revocable trusts won’t be challenged by Congress. Rather, the IRS and some U.S. presidents have been trying to do away with grantor trust advantages when the grantor trust provisions are used by trust makers to increase the value of large, complex trusts by having the trust maker continue to pay the income taxes on the trust using the trust maker’s personal assets that are still subject to estate taxes.

As much as the news focuses on using grantor trusts to reduce the potentially taxable gross estate, non-grantor trusts have become a high priority of states with high income tax rates, such as California and New York. In these states, high-income earners have been setting up trusts in other jurisdictions with no trust tax (places like Delaware, Nevada, South Dakota or Wyoming) and making the trust “intentionally non-grantor” so that the trust pays federal income taxes but avoids the high California and New York taxes.

The trust makers also make the trust incomplete for estate tax purposes so that the trust assets are purposefully included in the trust maker’s gross estate to get a step-up in basis for capital gains tax purposes. Both California and New York have passed laws that work contrary to the federal law so that the high-income-tax states can still tax the income of the non-grantor trusts.

Grantor trust income tax provisions are powerful because they permit a trust maker to pay the trust taxes themselves — and individuals almost always pay taxes at a lower rate than a trust. Additionally, when the income tax planning afforded by grantor trusts is paired with estate tax planning, grantor trusts are a powerful mechanism to effectively reduce the trust maker’s gross estate remaining outside of the estate tax-exempt trust.

However, caution must be exercised with the grantor trust rules because they interplay very closely with the estate tax and capital gains tax rules.

My next article will focus on how grantor trust provisions can have a significant effect on whether trust assets will be included in the gross estate of a decedent for computation of estate transfer taxes, and whether it is desirable to have trust assets included in the gross estate.

Other Articles in This Series

• Part one: To Avoid Probate, Use Trusts for Estate Planning
• Part two: How Quitclaim Deeds Can Cause Estate Planning Catastrophes
• Part three: Revocable Trusts: The Most Common Trusts in Estate Planning
• Part four: With Irrevocable Trusts, It’s All About Who Has Control
• Part five: Ins and Outs of Domestic Asset Protection Trusts (DAPTs)
• Part six: Irrevocable Trusts: Less Control Equals More Asset Protection

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• Estate Planning: Who Needs a Trust and Who Doesn’t?
• Eight Types of Trusts for Owners of High-Net-Worth Estates
• Four Reasons Retirees Need a (Revocable) Trust
• Four Reasons You Don’t Need a (Revocable) Trust

It made me think what the “easy swing and follow-through” of retirement planning is. In other words, what are the simple fundamentals that will lead to good results?

Let’s start with that easy swing.

1. The alignment of your stance is the equivalent of your financial plan.

In its purest sense, your financial plan ensures that your assets are aiming in the direction of your values and goals. If you want to help ensure your plan is on the right track, you can build one for free here.

2. Your club equals your asset allocation.

It’s just as tempting to buy Nvidia (NVDA) right now as it is to try to drive that short par 4. It’s probably better to swing easy and get there a bit more slowly rather than lose your ball in the water because you were greedy. Putting it more concisely, don’t swing for the fences if you’re retired or about to be.

3. The actual swing equals what you can control.

In golf, you can’t control the conditions. In retirement planning, you can’t control the market or the economy. Here are the things you can control and should focus on:

Cost. According to S&P Global, over 87% of all active large cap mutual fund managers did worse than the S&P 500 over the last 15 years, ending December 31, 2023. Why? Cost is one of the biggest drivers of underperformance. It creates a hurdle that fund managers must, but often don’t, overcome. It’s the biggest reason we don’t like to have mutual funds in our client portfolios. Of course, there is a time, a place and even a few winners, but we take the sure thing of low-cost.

Consolidation. All of your accounts tell a life story. I had this 401(k) from that employer. I signed up for this bank account to get a $500 bonus. In retirement, simple beats optimal. There are so many flexible, low-cost investment platforms that there is no good reason to have a lot of different investment accounts. They become too hard to manage and withdraw from, and they create a mess for your beneficiaries.

Asset location. This is the lesser-known cousin of “asset allocation.” Try to hold the right type of investments in the right places. For example, income from REITs is considered ordinary income, so REITs should be held in a retirement account. Growth stocks tend not to pay dividends, so they should be held in taxable accounts.

The follow-through includes the things that, even if you do easy-swing issues one through three above correctly, can prevent your ball from flying according to the plan. Here are the biggest misses I see on the follow-through:

1. You’ve done no tax planning.

We’ve all heard the saying, “It’s not what you make. It’s what you keep.” This is that. I’ve seen people so focused on getting their investments perfect that they miss big tax opportunities and end up paying six or seven figures more than they have to in retirement, in taxes.

2. You’re not sufficiently insured.

Insurance planning changes in retirement as you shift from insuring your income and liabilities to insuring against major health events. Many people have no choice but to accept the fact that going into nursing care for a prolonged period will wipe them out. Most of our clients want some sort of protection against this risk, even if it’s just the equity in their home.

3. You didn’t follow through on the estate planning.

Drafting a will and/or trust is not enough. There is typically a set of instructions on assets that need to be retitled or beneficiaries that need to be designated. Until this happens, you just have a big binder full of paper.

It turns out there’s more than I thought to an easy swing and a follow-through. I’m feeling better about my golf game already.

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Then you start to think about all that has happened in the world — and how your objectives may have changed — since you set up your “plan.” The holes probably loom large in your imagination, but there will be improvements that you can take advantage of, too, if you recognize them.

For one thing, the longer you live in your house, the more equity you have, barring emergencies. Current interest rates and inflation may seem alarming, but higher interest rates can also bring you more income from annuities. And keeping taxes lower in retirement is more likely when you employ the tools now at your disposal just because you’ve lived a little longer and saved a little bit more.

Designing the plan that best fits you

Start by thinking about your own wants and needs. There’s no reason to be intimidated. You know your objectives better than anyone. You also know your budget requirements, and also what your kids may need, and even whether you’re an “age-in-place” person.

Decide what’s most important to you. It could be tax reduction, the amount of guaranteed income or having liquid funds to pay for long-term care, a critical health crisis or another kind of emergency. You probably have in mind a number for starting income and whether you plan to leave a legacy to heirs. And perhaps you want to put off taking Social Security benefits as long as possible, or ensure continuity of income to your spouse. Finally, factor in your thoughts about the future of inflation and stock market performance.

The challenge is how to go from your current plan to one that meets your new thinking. Here’s a way to think about the process while at the same understanding more clearly what each step brings.

Starting with a traditional investment-only plan

Set out below is how a typical asset-focused plan might look. The plan is generating dividends and interest and using IRA withdrawals for current income and protects itself against large market losses by a low 30% allocation to stocks.

As you rethink your objectives, your new plan will begin to unfold. The order of steps above represents one set of personal objectives and just one way to implement that new plan.

Adding income annuities to the mix

In considering the next stage, you will see that income annuities can provide more income, lower your taxes and reduce your income risk.

For instance, IRS rules allow you to take $200,000 from a rollover IRA account and purchase a QLAC, a type of deferred income annuity that is designed to begin producing payments as late as age 85.

Income for today comes with a single-premium immediate annuity (SPIA), purchased with already-taxed savings to create a larger income stream without large additional taxes.

This is a logical and straightforward decision, replacing some of the fixed-income investments with income annuities.

Adding HECM to provide more income and liquidity

The next step: Add a home equity conversion mortgage, or HECM, to provide more income and, most important, a line of credit that grows over time. Under IRS rules, both sources of cash are considered loans and are not subject to federal income tax. If you end up needing money to pay for health care costs not covered by insurance, your HECM line of credit should cover it or give you a good start.

Under HomeEquity2Income, or H2I, HECM and QLAC are combined so that QLAC payments will pay for the HECM interest as well as provide income after age 85.

Now we have a plan that has attractive income and liquidity.

Final adjustments to balance market risk

Final step: With these two new asset classes in place, consider what level of risk you might assume in your split between fixed income and stock investment portfolios. With your greater security of income and lower taxes, you can increase the allocation of the stock portfolio in personal savings to high-dividend stocks, providing yet more income. The growth portfolio in your rollover IRA will provide potential for higher withdrawals.

Note that while this plan is apparently more aggressive, there is a lower-percentage allocation to stocks.

Other steps to consider

When you have more spendable money, you have additional options. You may decide to allocate a portion of your IRA withdrawals to a Roth IRA for tax purposes. If you have grandkids, a 529 plan awaits for funding college educations. You will have other options, too.

When you’re done, the new plan may still have some elements of the old plan, but the updates will allow you to more easily meet your goals for retirement income, liquidity, legacy and taxes.

Get started at Go2Income

Take the first step with a visit to Go2Income and start building a plan that considers income, taxes and long-term goals. The exercise is flexible, and when you have questions, schedule time with a Go2Specialist, who can answer all your questions.

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Revocable vs. Irrevocable Trust

How do you decide which one is best for you and your family? Both types avoid the dreaded probate process when a court manages the distribution of your assets after death. Probate can be costly, lengthy and public. Both types also require a trustee to manage the trust, a legal entity that governs the treatment of your real estate, investments, cash, and other assets.

The type of trust to set up comes down to what you wish to accomplish.

Revocable Trust: The People’s Choice

As its name suggests, a revocable trust, also called a revocable living trust, gives you the right to make changes to or terminate the trust in your lifetime. Its biggest feature is the flexibility and control it gives the grantor — or you, the asset owner. The biggest drawback is that assets in the trust are still counted towards income and estate taxes. It also is not protected from creditors, legal judgments, liens and other obligations.

“To choose between a revocable or irrevocable trust will be based on their needs. If they want to maintain control of their assets, and they need those assets during their lifetime, then they would use a revocable trust,” said Lee McGowan, president of Monument Group Wealth Advisors in Concord Mass., which manages $550 million in assets.

Most people choose to set up revocable trusts unless they are high-net-worth individuals seeking to maximize their estate and gift tax exemption, said Betty Wang, president of BW Financial Planning in Denver.

For 2024, assets up to $13.6 million per person ($27.2 million for a married couple) are exempt from federal estate and gift taxes, Wang said. So, if a person’s estate is worth $20 million, they might choose to put $7 million in an irrevocable trust. The remaining $13 million can be held in a revocable trust and is exempt from federal estate and gift taxes since it falls under the cap. However, they still have to pay income taxes on it. (Currently, 12 states and the District of Columbia also levy estate taxes.)

Typically, the owner or grantor is also the trustee of the revocable trust, although others can also be trustees. A married couple can be co-trustees so that when one spouse becomes incapacitated or dies, the other can carry on. When both have died, the trust becomes an irrevocable trust.

Irrevocable Trust: Is It Really a Tax Shelter?

An irrevocable trust is one in which the grantor gives up the ability to control or benefit from the trust assets once the trust is set up. People choose this type of trust if they have a specific purpose for the funds, such as controlling the payout to beneficiaries, designating the funds for a purpose, and protecting assets from liens, legal judgments, creditors, divorces and other obligations.

Due to state law changes in past years, it has become easier to change irrevocable trusts. “It’s a bit of a misnomer that an irrevocable trust can’t ever be changed,” McGowan said. “You can — it depends on the situation.”

One way is the designation of an independent trustee to make changes consistent with the grantor’s wishes. Another way is to give a beneficiary the power to appoint or redesignate the recipient of trust assets. The court also can order changes to a trust — or trustees can do what’s called “decanting,” moving assets from an old trust to a new one with better terms and conditions, as long as the changes are reasonably consistent with the original intent of the trust, McGowan said.

An attractive benefit of an irrevocable trust is that the grantor does not pay taxes on it; the trust can pay its own taxes without distributing its income. Alternatively, the trust can choose to give the income to beneficiaries, who will be the ones to pay taxes. This might be a better option if the beneficiaries fall into a lower tax bracket.

That’s because the taxes levied on the trust can be at par with the highest income tax rates. Within the trust, any ordinary income above $15,200 falls into the 37% marginal tax bracket, said Roger Stinnett, managing member of Stinnett Wealth Planning in Seal Beach, Calif. In contrast, the 37% rate doesn’t kick in for income taxes until $609,350 for a single taxpayer or $731,200 for joint filers.

Nevertheless, Stinnett sees a rush of people setting up irrevocable trusts by 2026 when the $13.6 million estate tax exemption will be cut roughly in half. That means they have two years to create and fund these trusts.

Beneficiaries with disabilities may need another type of trust, which can be revocable or irrevocable. These trusts provide for disabled beneficiaries without jeopardizing their government benefits. business trusts that hold business interests, among others. Life insurance trusts, which hold proceeds from insurance policies, are also fairly common but are irrevocable.

States with the most favorable trust laws

A trust created in one state is valid in all other states. However, each state has its own rules that apply to trusts. You can set up a trust in any state in which you have sufficient connections, such as having a vacation home in that state. In general, look at each state’s tax treatment of trusts, asset and creditor protection, privacy and modification rules.

The best states for trusts are Nevada, South Dakota, Delaware, Alaska and Wyoming, according to U.S. Bank. They do not charge state income taxes, offer perpetual trusts that are passed down through generations indefinitely, and provide asset protection and flexible decanting.

However, if the trust elects to shift the tax burden to beneficiaries, these favorable tax laws will be moot if beneficiaries don’t live in these states.

Read More

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If you’re philanthropically inclined, you can contribute your life insurance to a 501(c)(3) public charity, like a donor-advised fund. By contributing your policy during your lifetime, you’re able to use the value of your policy to benefit your favorite causes, while also claiming a current-year income tax deduction (if you itemize) and potentially reducing your estate tax liability. You can also name a charity now to be a beneficiary of your policy after your lifetime, helping to extend your charitable legacy.

What are the different ways you can donate life insurance?

There are two primary methods to contribute life insurance to charity, and each one has different timing and tax benefits.

1. Transfer the policy ownership and beneficiary interest to your favorite charity, which is generally possible with permanent life insurance. After taking ownership, the charity may opt to surrender the policy for its cash value. (Life insurance companies often allow a policy owner to “surrender” their policy — in other words, cancel it to receive a cash value, minus any surrender charges and fees.)

Tax benefits to this method:

• Life insurance is considered an ordinary income asset, meaning that surrendering a policy for its cash value would trigger ordinary income taxes for you on the policy’s appreciation — even if you took that money and then donated it to charity. But, by contributing your policy directly to charity, you potentially avoid the tax you would otherwise incur if you surrendered the policy yourself and donated the proceeds. And because U.S. public charities are tax-exempt, the charity can surrender the policy for its full, untaxed value, maximizing the impact of the contribution.
• Assuming you itemize your deductions, you may also claim a current-year tax deduction for the policy contribution. Because life insurance is an ordinary income asset, the deduction is limited to the lesser of the policy's value or your adjusted cost basis in the policy (generally, premiums paid to date).
• An added benefit is that the policy’s value could potentially be removed from your gross estate, lowering your estate’s eventual tax burden.

2. Retain ownership of your policy but name a charity as a full or partial beneficiary. In this situation, the charity would receive a designated payout from the insurance company after your lifetime. While you can’t claim a charitable income tax deduction during your lifetime in this situation, your estate will be entitled to claim a charitable estate tax deduction for the beneficiary proceeds distributed to charity at your death.

This method can offer you more flexibility in case your circumstances change (you can change the beneficiary named on your policy), and it can be appealing to those who might not otherwise be able to make a significant gift during their lifetimes. Keep in mind that you may need to continue paying policy premiums for the remainder of your life.

More advanced donation strategies exist, including options that replace income. If you’re interested in exploring those strategies, contact your tax adviser or estate planning attorney.

What types of life insurance can you donate?

You can donate both permanent life insurance (including whole life and universal life) and term life insurance to charity, but the donation options differ.

Permanent life insurance policies hold cash value that can be surrendered. A cash value policy (in particular, a paid-in-full cash value policy) can be an appealing donation because you have the option of gifting during your lifetime, not just at the end of it. And by gifting during your lifetime, you may be able to take advantage of the tax benefits described above.

On the other hand, term life insurance donations have their limitations. While term policies can still be used to benefit charity, gifting during your lifetime is not an option. You can only name a charity as an end-of-life beneficiary. And because term policies are only active for a specified period, you should investigate whether the term policy could expire during your lifetime.

Can you donate life insurance to a donor-advised fund?

A donor-advised fund account, like the one offered by Schwab Charitable™, is a simple, efficient and tax-smart giving solution. By contributing to a donor-advised fund, you can potentially reduce tax burdens, invest contributed assets for tax-free potential growth and recommend grants to qualified U.S. public charities immediately or over time.

Donor-advised funds like Schwab Charitable are public charities themselves. Subject to prior due diligence review, Schwab Charitable can accept your policy as a charitable contribution and surrender it for a cash value. The funds are then made available for you to recommend investments and grants.

Once you have an account open, you may also name your account as a beneficiary of your policy. Recommended grants to charities after your lifetime would then be based on your account’s succession plan or granting history.

Maximizing a gift during a donor’s lifetime: A case study

Years ago, Shannon invested in permanent life insurance, ensuring that her family would be cared for after her lifetime. Now in retirement, Shannon realizes she’s accumulated more wealth than her family needs, even without the life insurance policy, and she decides she wants to make a charitable impact during her lifetime.

Shannon learns that the value of her life insurance policy can be used as a charitable contribution. Alongside her financial adviser and tax adviser, she explores her policy surrender options and how she can maximize charitable impact.

Option 1: Surrender the policy herself and then contribute the post-surrender proceeds. Shannon’s policy has a $500,000 surrender cash value, with $200,000 in basis (premiums Shannon has paid over the years), without a loan against it. Because life insurance is an ordinary income asset, if Shannon surrendered the policy herself and then contributed the proceeds, she’d incur income tax on $300,000 (the policy gains). Assuming a 24% income tax rate, the post-surrender charitable contribution would be reduced from $500,000 to $428,000. (For simplicity, this hypothetical example assumes no surrender charge or other fees.)

Option 2: Contribute the policy directly to charity, which then surrenders the policy for its cash value. If Shannon transferred the policy ownership to her desired charity and let the charity handle the surrender (rather than Shannon surrendering the policy herself), she would eliminate the taxable income. And, as a tax-exempt entity, the charity would not pay income tax when surrendering the policy. Unlike the first option, the charity would receive the full $500,000 value. (Again, for simplicity, this hypothetical example assumes no surrender charge or other fees.)

Here’s a chart showing the tax impact for Shannon and the charity:

Note: This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or potential surrender fees. The tax savings shown are the tax deduction multiplied by the donor’s marginal income tax rate (24% in this example) minus the income taxes paid. In Option 2, the deduction is limited to the $200,000 policy basis.

Other considerations when donating a life insurance policy

1. Loans against the policy can complicate your charitable contribution.

If you have taken out any loans against the insurance policy, you may be subject to IRS “bargain sale” rules, which can generate taxable income for you and lower the value of your charitable deduction.

2. Annual limits apply to charitable deductions.

If you itemize deductions when filing taxes, your deduction for a during-life contribution of a cash value life insurance policy is generally limited to 50% of your adjusted gross income (AGI). Any deduction amount above this AGI limit may be carried forward for up to five additional tax years, subject to AGI limits in each year.

3. Qualified appraisal requirement rules may apply.

To claim a charitable income tax deduction for during-life contributions of permanent life insurance policies, you must not only itemize income tax deductions, but also must obtain a qualified appraisal from a qualified appraiser if the claimed deduction is greater than $5,000. You also must file IRS Form 8283 with your taxes for the tax year that the life insurance gift is made.

4. You may potentially minimize your gross estate’s tax exposure.

Your life insurance is included in your gross estate after your lifetime. By donating your policy during your lifetime or by retaining your policy’s ownership and naming a charity as a policy beneficiary, you can reduce the value of your gross estate, potentially minimizing its eventual tax exposure.

5. Donors must work directly with their policy administrator to update ownership and/or beneficiary information.

It can take time to finalize the policy ownership transfer through your policy administrator (insurance company), which could result in a delay in making the gift. If you’re planning to make your contribution near year-end, consider starting the process early to avoid any deadlines for yearly tax deduction eligibility. Please note that most charities want to know if you are planning to donate a life insurance policy, whether during or at the end of your lifetime. Some due diligence review before acceptance may be required by the recipient charity.

It’s simple to contribute to your donor-advised fund account, but life insurance and other non-cash assets can be nuanced. Refer to online resources, or experts, such as the Charitable Strategies Group at Schwab Charitable for specialized knowledge on contributing complex assets to charities.

Please be aware that gifts of appreciated non-cash assets can involve complicated tax analysis and advanced planning.

A donor's ability to claim itemized deductions is subject to a variety of limitations depending on the donor's specific tax situation. Consult a tax adviser for more information.

Contributions of certain real estate, private equity, or other illiquid assets may be accepted via a charitable intermediary, with proceeds transferred to a Schwab Charitable donor-advised account upon liquidation. Call Schwab Charitable for more information at 800-746-6216.

Schwab Charitable Fund™ is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable Fund™ are considered an irrevocable gift and are not refundable. Once contributed, Schwab Charitable has exclusive legal control over the contributed assets.

Schwab Charitable does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax adviser where such advice is necessary or appropriate.

Schwab Charitable™ is the name used for the combined programs and services of Schwab Charitable Fund™, an independent nonprofit organization. Schwab Charitable Fund has entered into service agreements with certain subsidiaries of The Charles Schwab Corporation. (0624-7PJ3)

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They had done well on their investments, but the rest of their plan had no focus, and they were missing important details. These weren’t mistakes that would cause failure, but they were mistakes that could cost them hundreds of thousands of dollars over the course of their retirement. They needed to understand that when you have saved millions of dollars and enter into retirement, your focus shifts.

A cookie-cutter plan concerned only with saving and growing investments is no longer useful. You now have to consider more sophisticated planning based on taxation and estate plans. For example, people with significant savings often need to know:

• How to fund their lifestyles in the most tax-efficient way now that they no longer have incomes
• Advanced tax strategies like Roth conversions and how much to convert each year in a smart way
• If they need more sophisticated estate planning documents or trusts in place
• How to ensure tax-smart distributions to beneficiaries when they pass

Many of the people who schedule time with us are complete DIYers, as we call them. They love it, and it even seems like a hobby for them. However, many of them end up choosing to work with us for the following four reasons.

1. Advanced tax strategies.

Many DIYers who come to us feel fairly confident on the investment side of things. Although they may not necessarily have the best investment structure in place, their strategies have done well enough. The real concern comes from tax planning and knowing what strategies are out there to save money on taxes. It makes sense that many people do not know how to do this because the rules change so often. If you are not reading the tax code and staying up to date on changes, then you may be missing out on opportunities (this is something we see often with this group.)

It is also, in my mind, the most important financial pillar to plan for, considering taxes will most likely be the biggest expense in retirement. Most of the time, we are able to show DIYers enough value in tax savings and other financial planning guidance to make the fees worthwhile.

2. Lack of knowledge of tax rules and changes.

No one wants to make mistakes with their money or leave money on the table because they’re not able to stay up to speed on ever-changing tax rules. If they do not spend every day studying financial planning, they may not be up to date on everything or aware of all the strategies they are missing. If this is you, you have to ask yourself: How many retirements have you successfully planned? And is it worth trying to DIY something this important when you’ve never done it before? Would you ever work with an adviser who has no experience besides managing their personal investments? That is technically the decision you are making by DIYing your retirement.

3. Delegation.

Those who have saved successfully and are ready to enjoy their retirement are usually more interested in focusing on enjoying their time and not having to worry about reading tax law changes or following investments. For such people, the question is: Will it be worthwhile to pay a fee to an adviser to give you more time and peace of mind?

I am a big fan of delegation in my personal life. I try to delegate everything that someone can do better than me, as well as anything I do not enjoy. The time and money saved from avoiding mistakes is everything to me. I get to do what I love most: spending time with my family, traveling, exercising and working in my business.

A great example of why delegation is important occurred when I once tried to fix a plumbing issue. It took me more than 10 hours. I did not have the tools, so I had to go to the store to buy everything. Then I had to spend more time than an expert because I had not done it before and had to watch YouTube videos to learn what needed to be done. I had to waste my entire weekend. Instead, I can pay a few hundred dollars to a plumber, have no worries and save my time. I like that concept.

4. Assistance for the surviving spouse.

Many of these DIYers do a great job planning their retirements and get many of the key points established. They may be successful on their own, but when they are gone, will their surviving spouse be as capable? More often than not, we find that one side of the marriage is finance-oriented, and the other is not.

Are you confident your spouse will be able to decide how much to convert each year or how to rebalance and make adjustments to the investment portfolio? Will your spouse know which investments to use for income?

The other question to consider is: Do you want to decide who your spouse’s adviser will be, or would you rather your spouse choose? If they do not have as much knowledge about financial planning, then they may not pick the best adviser team to serve them and may not know what to look for when vetting different firms. As we all know, there are advisers out there who do not always do the right thing.

If you are a DIYer and these points don’t apply to you, or maybe you are okay without having a plan for these issues, then you may not have to worry and should continue on. Sometimes, doing it on your own because you enjoy it can be worth missing a few details. At the end of the day, it’s your plan and your choice what the future of your life savings and retirement will look like!

 Here are a couple of videos that may help you on your journey:

• This video will help you decide if you want to continue doing things on your own or seek out help.
• This video will help as you do tax planning on your own.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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Who should make an estate plan?

There’s a common misconception that estate planning is only for the rich and famous; it’s not. If you have a home, a car, a vacation property, valuables and family, you need to make a plan for how those things will be handled after you die, or become cognitively impaired. Estate planning isn’t just about determining how to distribute assets, it extends beyond that, including plans for your long-term health care, the guardianship of your minor children if you die prematurely and funeral arrangements.

If you’re a young adult, you might feel like you have plenty of time to plan your estate, or that you don’t have enough assets to make it worthwhile. But unfortunately, life is unexpected, and it’s impossible to know what the future holds. The sooner you start planning, the better.

1. Start with an inventory of assets and liabilities.

It can be difficult to figure out where to start, but the best way to start is by taking inventory of your personal situation. Some experts suggest writing down everything you own, including both tangible and intangible assets. Tangible assets are physical items such as cars, furniture, homes and even jewelry. Intangible assets include items such as your bank accounts, retirement accounts, life insurance policies, investments and online accounts.

Keeping a running list of everything you own can prevent you from forgetting to include all your assets in your plan.

In addition to your assets, you’ll want to list your liabilities. Liabilities are items you owe money on, such as a car, a home, credit card debt, loans and utility bills. If you die with debts, the amount will generally be paid using the money or property left in your estate. If you share any debts, your surviving spouse or co-signers may be responsible for paying them, depending on your state laws. A lawyer or legal adviser can help you with this.

2. Create a comprehensive will.

After listing all of your liabilities and assets, you can begin assembling your will. Think of your will as a comprehensive guide that provides specific instructions on your final wishes. This includes naming beneficiaries, appointing financial and medical powers of attorney and naming an executor of your estate.
These people essentially speak on your behalf, so make sure they’re someone you trust to act in your best interest. If you have minor children, you’ll also want to figure out who will take guardianship over them in the event you die unexpectedly.

3. Make a medical plan.

The next step is to make a medical plan. In this part of the plan, you’ll need to name a medical power of attorney. This person is responsible for making treatment decisions on your behalf. From there, you’ll want to consider long-term care options. Where will you live as you get older? Who will be taking care of you should you fall ill or become incapacitated? These are all important questions that you’ll want to talk about with your loved ones.

Another, perhaps more grim, aspect of your medical plan includes end-of-life care. What will happen to your body once you're gone? Some people choose to donate their body to science, while others want to be buried or cremated. If you’re an organ donor, be sure to include instructions on what you are and aren’t willing to donate.

You can also take this time to review or obtain life insurance. These funds can help support your surviving family and pay for funeral costs, but be sure to name beneficiaries as you see fit. If you don’t, it will be extremely difficult for that money to be given to the person you intend.

4. Provide specific instructions for personal property.

When it comes to your personal property, you need to be specific about how those items will be distributed. Who will get what? This particular area can cause a lot of tension between surviving family members.

If your instructions are vague, it can become an expensive hassle for your family that can drag out in court.

5. Decide who will oversee your finances.

In addition to a medical power of attorney, you’ll also need to include a financial power of attorney. This person will be responsible for handling all decisions relating to your finances.

When making a plan for your finances, consider estate taxes, trusts and all investments. A financial adviser can help you determine what to include in this part of the plan based on your financial situation.

6. Set up a plan for your digital estate.

These days, most of us have some sort of digital presence. This includes everything from social media and email accounts to online banking, gaming and shopping.

Be sure to list all of your accounts and include login information for each. Include instructions for closing the accounts, or transferring them to a beneficiary if applicable.

Understanding the probate process

You may have heard about probate. The term typically carries a negative connotation, and it can be a nightmare if you don’t plan accordingly. Probate is the formal legal process that recognizes your will and officially appoints an executor or personal representative to administer the estate and distribute assets.

If you’ve named a specific executor in your plan, the court will officially appoint them during this process.

Probate processes can vary between different states, and in some cases, an estate may not be required to go through probate at all. This is where the importance of your plan comes in. Without an estate plan, the court will determine how your estate should be distributed based on the laws in your state. If there are any vague instructions, or missing portions of your estate plan, your estate will most likely need to go to probate — which can be expensive for families and can take years to finalize.

Don’t set it and forget it

Life is fluid, and your estate plan needs to be able to adapt. Make sure beneficiaries and powers of attorney are up to date. It’s best to revisit your estate following major life changes, such as a marriage or kids.

There are a lot of steps to creating an estate plan, but it’s important to not take it all on by yourself. Start having conversations with your family members about your specific wishes and plans and consult with estate attorneys. They can help you draft all the necessary documents according to the law, which will make it easier for your family in the event your estate goes to probate.

Pat Simasko is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Simasko Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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