8 Estate Planning Strategies To Discuss With Your Financial Advisor

article image

A common misconception is that estate planning is only for the wealthy. However, estate planning involves more than just wealth distribution; it encompasses end-of-life healthcare decisions, guardianship for minor children, and ensuring your wishes are carried out, regardless of the size of your estate. While some may prefer to do their estate planning themselves, this approach may not always be the wisest choice. Navigating estate taxes, legal documentation, beneficiary designations, and more demand a thorough understanding of the laws and an ability to foresee potential challenges. Without the expertise of a seasoned financial advisor that specializes in estate planning, one may overlook critical aspects or fail to take advantage of available opportunities for asset protection and tax optimization.

A financial advisor brings invaluable insights and specialized knowledge to the table and works closely with you to comprehend your unique financial situation, family dynamics, and long-term goals. They can also help you develop a personalized estate strategy that aligns with your wishes, help minimize your tax burdens, and safeguard your legacy.

This article explores some essential estate planning strategies you should discuss with your financial advisor to ensure efficient and smooth management of your estate.

What estate planning strategies should you discuss with your financial advisor?


1. Creating a will to ensure your wishes are carried out in case of your demise or incapacitation

A will serves as a blueprint for the distribution of your assets after you pass away. This legal document ensures that your belongings are distributed according to your wishes (after your death) and your assets are not misused or involved in probate (a legal and expensive process of distributing a deceased person's assets and settling debts under court supervision). You can appoint a personal representative, commonly known as an executor, who will carry out your will and handle the administrative aspects of your estate.

Beyond the traditional will, you also have the option to create a living will, which serves a distinct purpose. A living will enable you to specify your preferences concerning life-sustaining medical treatments in situations where you may be incapacitated, rendering you unable to communicate your wishes. You may discuss your wishes and plans with your financial advisor, who can advise and guide you on making the whole process smooth and well-organized.


2. Establishing a power of attorney to safeguard your financial and physical wellbeing

A financial power of attorney may play a crucial role in your estate planning by designating a trusted individual to make financial decisions on your behalf in case of incapacitation. This appointed person, often referred to as your agent or attorney-in-fact, assumes the responsibility of managing your financial affairs, handling bill payments, and making important financial decisions when you are unable to do so. Similarly, a healthcare power of attorney is equally vital in ensuring your medical preferences are carried out in case you become incapacitated. By appointing a trusted individual as your healthcare agent, you empower them to make critical medical decisions on your behalf.


3. Establishing a trust to secure your assets

A trust refers to a fiduciary arrangement wherein a grantor gives a trustee the right to own and manage various assets such as real estate, financial accounts, vehicles, and business interests. By placing assets within the trust during one's lifetime, individuals can ensure that these properties are passed on to their heirs. Trusts help facilitate the transfer of wealth seamlessly to beneficiaries while safeguarding assets from unnecessary taxes, potential disputes, and public scrutiny. A trust operates based on a fiduciary agreement, meaning that the trustee, the person designated to manage the trust, is bound to act in the best interests of the beneficiaries.

There are several different types of trusts that cater to specific needs and goals:

  • Revocable living trusts allow for flexibility and control during the grantor's lifetime, enabling changes to be made if circumstances evolve.
  • Irrevocable trusts offer greater asset protection and potential tax advantages but cannot be modified once established.
  • Specialized trusts, like charitable or special needs trusts, address specific philanthropic or family-oriented objectives.

You can consult a financial advisor to determine the most suitable trust types to preserve wealth, safeguard beneficiaries, and leave a lasting legacy.



Need a financial advisor? Compare vetted advisors matched to your specific requirements.

Choosing the right financial advisor is daunting, especially when there are thousands of financial advisors near you. We make it easy by matching you to vetted advisors that meet your unique needs. Matched advisors are all registered with FINRA/SEC. Click to compare vetted advisors now.


4. Reviewing and updating beneficiary designations

In estate planning, beneficiary designations hold significant importance, particularly for assets such as life insurance policies, retirement accounts, and other financial assets. It is critical to consider adding beneficiaries to various other accounts, including checking and savings accounts, certificates of deposit (CDs), investment accounts, annuities, and more.

Regularly reviewing and updating these designations is essential to ensure they align with your current wishes. One notable advantage of having named beneficiaries for bank accounts and other assets is that they bypass the probate process altogether. Upon your passing, these accounts seamlessly transfer to your designated beneficiary without the need for probate proceedings.

To ensure that your estate plan reflects your current aspirations, it is vital to keep your beneficiary designations up-to-date. Regular communication with your financial advisor allows you to stay updated on designations and maintain the security of your assets.


5. Considering joint ownership with the right of survivorship while making an estate plan

Joint ownership with the right of survivorship may be an effective estate planning strategy to bypass probate for specific assets. When you jointly own a property with this right, it automatically transfers to the surviving joint owner upon your death, eliminating the need for probate.

However, it's crucial to be aware of potential challenges associated with joint ownership while you are still alive. One such concern is the risk of creditors making claims on the property owned by you in a joint ownership capacity, which could impact your interests in the asset. Additionally, once you pass away, the surviving joint owner is not legally obligated to follow any property distribution instructions you may have left behind.

Given these complexities, it is advisable to consider the implications of joint ownership and the right of survivorship in conjunction with your broader estate planning goals. Seeking guidance from a qualified financial advisor for estate planning can help you make informed decisions concerning joint ownership and the right of survivorship.


6. Making use of gifts to lower your taxability

By transferring assets as gifts to your loved ones, you can decrease the overall value of your estate, potentially lowering the tax burden on your beneficiaries. To avoid incurring gift taxes, it is important to ensure that your gifts remain within the limits of the IRS annual gift tax exclusion. For 2023, the annual gift tax exclusion is $17,000 per person and $34,000 if the gift is given together by a married couple. Additionally, you can take advantage of a lifetime gift tax exemption which stands at $12.92 million for 2023.

Your financial advisor can help you navigate the complexities of gifting and associated taxes, ensuring that you minimize estate taxes.


7. Utilizing transfer on death deeds (TOD) for real estate

A Transfer on Death Deeds (TOD) allows you to specify who will inherit your property upon your passing. TOD has a distinct advantage over joint ownership with the right of survivorship. With a TOD, the financial risk associated with joint ownership is partially alleviated, as your beneficiary's creditors do not have any claim to the property while you are alive.

Consult with your financial advisor to determine if a TOD may be suitable for your real estate holdings.


8. Investing in life insurance for tax-free inheritance payouts

Life insurance can be a valuable component of your estate planning strategy, providing tax-free inheritance payouts to your beneficiaries. When you have more than one beneficiary, you can specify how the cash payment should be allocated to each beneficiary, tailoring the distribution according to your wishes.

To leverage the full benefits of life insurance, it is essential to collaborate closely with your financial advisor. Working together, you can assess your unique circumstances, evaluate your life insurance needs, and determine the appropriate coverage amount to protect your loved ones.


To conclude

Estate planning is a critical process that allows you to manage your assets and liabilities before and after you die. Consider engaging a knowledgeable financial advisor who specializes in estate planning to create a comprehensive plan that aligns with your goals, protects your assets, and ensures the well-being of your loved ones. Make a careful assessment of different estate planning strategies with your financial advisor to secure your and your loved ones’ financial future.

Use the free advisor match service to match with experienced financial advisors who can guide you on how to create an effective estate plan that suits your needs. If you answer a few simple questions about your financial needs, our matching tool can connect you with 1-3 advisors who are best suited to meet your financial requirements.

You may also be interested in

Get matched with the best financial advisors near you to guide you towards your financial goals

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.