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Estate Planning in 2024: What You Need to Know

Do you have an estate plan in place? Chances are, you don’t. A recent Ameriprise survey of Americans between 45 and 70 revealed that 52% did not have an estate plan in place. Why? Because they delay discussing emotionally charged financial decisions, even though they share similar financial values and visions of retirement. 

Certainly, one reason could be that they don’t understand the value an estate plan brings to the table or who exactly can benefit from one. Many believe that estate plans are reserved for the fabulously wealthy on the verge of death. That couldn’t be further from the truth! At every life stage, estate planning can be not just beneficial to your financial situation but invaluable for your family in other ways.

Young Families

Nobody ever thinks it will happen to them, but an early death is all too possible. In fact, the number four cause of death in America is accidents, accounting for 6.5% of all deaths. Car accidents, unintentional poisonings, and falls are the most common reasons. The last thing you want is for your children to be forced into the foster care system surrounded by strangers. 

Taking the time to designate a guardian is one of the first things you should do after the birth of a child. Additionally, drafting a will is crucial and should not be overlooked. A will allows you to specify your wishes regarding the distribution of your assets and the care of your children, providing clear guidance and preventing potential legal disputes among surviving family members. Beyond that, you can set up a trust for your children’s education and maintenance to ensure that funds are used for exactly their benefit under your terms and conditions. 

If you are the primary breadwinner in your household, how will your family survive without your income? A life insurance policy should also be a priority to help secure your family’s financial future in your absence. 

Your life insurance policy will be included in your taxable estate and may not be protected against creditors. If your taxable estate exceeds that of the federal estate tax exemption limit or if you are worried about creditors coming after your policy, an Irrevocable Life Insurance Trust (ILIT) may be an appropriate solution. It will also help guarantee that your death benefit goes to your desired beneficiaries as you see fit. 

This is accomplished by removing the policy from your personal estate and placing it in the trust. You continue to pay the premiums indirectly via ‘gifts’ to the trust. If there is a cash-value component, that value will continue to grow, not be included in your taxable estate, and be secure from creditors. 

Death isn’t the only risk you face, though. Early incapacitation, whether temporary or permanent, can cause perhaps an even greater financial and emotional burden than death. In case you’re left without decision-making abilities, you’ll need the following documents to ensure a person you trust ends up in control: 

Healthcare power of attorney: This legal document assigns someone you trust the authority to make healthcare decisions on your behalf if you are unable to do so yourself.

Living will: A detailed document outlining your medical treatment preferences should you become unable to communicate your wishes directly.

Durable financial power of attorney: A planning document that grants an individual of your choice the immediate legal authority to make decisions related to the management of your finances, real estate, and business interests. 

Revocable living trust: A planning document that immediately transfers control of all assets held by the trust to a person of your choosing to be used for your benefit in the event of your incapacity. The trust can include legally binding instructions for how your care should be managed and even spell out specific conditions that must be met for you to be deemed incapacitated.

If incapacitated, you may not have an income for a considerable amount of time, if ever. Here, disability insurance can help ease your burden. 

Regarding insurance policies, it’s vital to speak with a fiduciary advisor to discuss your exact requirements and to guide you through the process. It’s their legal obligation to act in your best interest so they won’t push a policy on you that is overly expensive or provides too much coverage.

Middle of Your Career

Your career is growing, the kids are getting older, and your net worth is growing. Your estate plan should reflect your new assets, such as your (hopefully!) significant investment portfolio, new assets such as real estate, and other acquisitions. 

If you have a family business, things become even more interesting. You’ll want to craft a succession plan to ensure seamless operations in case of your sudden passing or incapacitation. You may also consider dividing up business interests among family members via a family limited partnership structure to help reduce your overall taxable estate. 

An ‘Intentionally Defective Grantor Trust’ (IDGT) is another method to pass on your business to your heirs in a tax-efficient manner. You shift ownership of a portion of your business to a trust, removing it from your taxable estate. There’s a hitch, though – you’ll have to pay any income tax the trust produces, even though you won’t draw a personal income from it. As the company grows, you use the proceeds of the portion of the business that remains under your control to pay the income tax generated by the portion in the trust.  

Now may also be the time to consider ways of creating as much tax-free income as possible in retirement, such as Roth conversions. If you’re a high earner, be sure to look into Backdoor Roth IRAs and Mega Backdoor Roth IRAs. If you don’t need the money in retirement, you can leave a tax-free gift for your beneficiaries.

Retirement & Legacy

As you head into retirement, you shift from a growth mindset to an asset preservation and legacy mindset. How will people remember you? Will your years of hard work and careful planning transform into generational wealth and fond memories? Philanthropic donations can help you accomplish both in a tax-efficient manner. 

Firstly, at age 73 (as of 2024), you’ll have to begin withdrawing from your tax-deferred retirement accounts, such as your IRA and 401(K). Your tax plan should account for these Required Minimum Distributions (RMDs). With your legacy in mind, you can reduce the taxable portion of your RMDs by donating directly to a qualified charity of your choice via a Qualified Charitable Distribution. 

Other options include a Charitable Remainder Trust (CRT) and a Charitable Lead Trust (CLT). A CRT involves funding a trust for an immediate tax deduction and receiving income from the trust for a set amount of time (or until death), and the remainder of the assets going to a charity. 

A CLT works in the opposite way of a CRT. In a CLT, the charity receives the income from the trust for a set number of years or until a specific event, such as the donor’s death. After this period, the remainder is transferred to a non-charitable beneficiary, such as your heir. When setting up the CLT, you may receive an immediate income tax deduction, calculated based on the present value of the income stream expected to go to the charity over the trust’s term.

Final Thoughts

What exactly is estate planning? It encompasses a range of strategies that might appear distinct at first—Roth IRAs fall under retirement planning, insurance under risk mitigation, and charitable donations under philanthropy. Yet, all these elements are integral parts of a cohesive estate planning framework.

The strategies we’ve mentioned in this article are just a drop in the bucket of the strategies available to you, all dependent on your financial and family situation. But we hope that you now have a deeper understanding of estate planning and the basic actions that you should take before it’s too late. 

Are you ready to ensure your estate plan reflects your exact wishes and benefits your loved ones most effectively? Click the button below to schedule a zero-obligation consultation with a fiduciary advisor committed to your best interests.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. The scenario mentioned in this presentation is not an actual client experience. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this presentation.

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.

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