By John Smallwood
Financial planning for the estate of a beloved family member can be fraught with emotions. Many people put it off as a result; in fact, only a third of American adults have estate planning documents.
Nevertheless, it’s crucial to safeguard your legacy and your family’s future through estate planning. Future generations can be adversely affected by the lack of an estate plan. But putting one together doesn’t have to be complicated. Here are some basics every family should know.
Estate Financial Planning: Documentation
All families need to prepare documents to carry out fair distribution of estate assets. Some of the most important documents include:
Will
A will serves as the central document of estate financial planning. It dictates the deceased individual’s asset distribution according to their wishes. You can designate a family member or other trusted party to execute your estate. If minor children are in the picture, it’s even more necessary to draw up a will.
Healthcare Directives
As one nears the end of their life, medical issues become more prominent and necessary. A separate document known as a “living will” should outline your preferences in the event you need interventions to preserve your life.
Families need to be fully aware of the medical information they’ll need in case of emergency. A healthcare proxy can designate a particular family member or friend who can make mindful decisions on the patient’s medical treatment.
Power of Attorney
A power of attorney (POA) designates a trusted person to oversee financial planning after your death. A POA agreement outlines which individual is to take over business-related estate planning. Whoever earns the POA designation should be closely involved in the legal process and be clear on the extent of their responsibilities.
Trusts
A trust works hand-in-hand with your will to manage the distribution of assets after death. Its primary function is to put certain assets in escrow, removing them from the estate and instructing how they’ll ultimately be distributed. A trust helps you and your family avoid the sometimes grueling probate process.
Additional Estate Financial Planning Options
Individuals with high net worth can face more complicated scenarios in end-of-life financial planning. As of 2024, a person can leave up to $13.61 million to benefactors without triggering a death tax. Funds given to a spouse are entirely exempt from tax considerations.
To facilitate the distribution of assets, wealthier individuals can issue specific documents that clarify their wishes. A financial advisor can help you find the best option for your needs. These options include:
Intentionally Defective Grantor Trust (IDGT)
A grantor trust is a document dictating that whoever sets up the trust is responsible for all taxes on the estate. An intentionally defective grantor trust (IDGT) contains an intentional “mistake” that retains the grantor’s income tax responsibilities even if the assets are no longer part of the estate.
This allows assets to grow tax-free and safeguard beneficiaries from tax implications. It’s good for those expecting their assets to grow consistently.
Irrevocable Life Insurance Trust (ILIT)
An irrevocable life insurance trust (ILIT) sets up a life insurance policy administered by a trustee. This policy allows death benefits to be excluded from the estate, handing them to the trustee for payment of the policy premium. It can also help you avoid federal gift taxes.
Spousal Lifetime Access Trust (SLAT)
A spousal lifetime access trust (SLAT) is an irrevocable trust that dictates the distribution of assets with the spouse as the primary beneficiary. Couples can make donations to this trust to cover family priorities like college, healthcare, and other functions. When you pass, the insurance payouts go straight to your surviving spouse.
Get Skilled Help With Your Estate Financial Planning
If you’re ready to get started with financial planning for your estate, I can help. Smallwood Financial Planning offers clients unique tools like The Wealth Curve, my proprietary program for streamlining personal wealth management.
Don’t hesitate to click HERE to consult with our team of skilled professionals at Smallwood Wealth Management who are ready to assist you in developing a complete understanding of your financial future.
About John
John Smallwood is president and financial advisor at Smallwood Wealth Management, based in Red Bank, New Jersey, a financial services firm dedicated to providing confidence and precision in building clients’ wealth. As a CERTIFIED FINANCIAL PLANNER™ professional, he provides investment consulting and financial plan design for corporate executives, entrepreneurs, and professionals. John’s strength lies in his ability and commitment to continually improve the level and quality of the planning process. It is his objective to provide a process of repositioning assets to help decrease risk, decrease taxation, and increase protection, a process called The Wealth Curve™. His clients recognize his dedicated and coordinated long-term approach to wealth creation and preservation, an evolving strategy that strives to meet the demands, desires, and needs of his clients in a continually changing economic environment.
John holds an economics and finance degree from Bentley College and his CERTIFIED FINANCIAL PLANNER™ certification. With over 30 years of experience in the field and an eight-year winner of the Five Star℠ Wealth Manager award, John’s book It’s Your Wealth – Keep It is a bestseller on Amazon. He is also the author of 5 Ways Your Wealth Is Under Attack, the creator and host of the Wealth Curve™ Talk podcast, and creator of the seminar “Retire ASAP.”
He has lectured on the topic of wealth management at conferences including the Entrepreneurs Conference by Haas School of Business, University of California at Berkeley, and Kenan-Flagler Business School, University of North Carolina at Chapel Hill. John and his wife, Sharon, reside in Red Bank, New Jersey, with their children, Jack, Jared, Christopher, and Eve. Outside of work, he enjoys skiing, fishing, boating, fitness, pickleball, the beach, and body surfing. To learn more about John, connect with him on LinkedIn.
