Estate Planning Strategies & Mistakes

At some point during your life, you may start thinking about issues including transferring money to your heirs and protecting your assets from becoming subject to unnecessarily high taxes when you die. In my experience, people with up to 2M generally are satisfied with having a Will along with annual reviews of their beneficiary elections and checking the registration and titling of investment accounts and real estate. Most of that can be done with a financial advisor with add-on services from an estate planning attorney – usually the “Will package” which includes a Will, Living Will, Health Proxy and Durable Power of Attorney. What happens when your net worth balloons to 5M, 10M, or 100M? Estate planning gets a bit more complicated and you need to be extra cautious, as we will discuss below:

 Even if your estate is not several million dollars, you may want to establish a revocable living trust (RLT) and put your non-IRA, non-retirement assets in there. IRA assets and other account types with direct beneficiary elections don’t need to be placed in a revocable living trust. Funding a RLT is simply a matter of changing the registrations of your bank accounts, investment accounts and real estate to the trust from your own name. Using a RLT allows the owner to pass assets to their heirs without the probate process – essentially the time and money involved with validating the Will and getting those assets transferred to their new owners.

Related to the above, I should point out that putting your life insurance into the trust may not yield a tax benefit if the owner is the same as the insured. If your estate value is below the exemption amount at the time of death, it won’t really matter. But if it’s above the exemption amount, you’ll want to consider establishing an irrevocable life insurance trust (ILIT) and having it own the policies for you. This process removes the life insurance proceeds from your estate and gives your heirs a tax-free payout. There are some restrictions when it comes to transferring existing life insurance policies into ILITs, so you’ll want to speak to your financial team about that.

While on the topic of life insurance, it should be noted that for estate planning purposes life insurance is a very useful vehicle. Traditionally, life insurance is used to create money for heirs in cases where an untimely death of a primary income earner creates financial risk for a family. With estate planning, the main benefit is liquidity. For example, a real estate family may not want to force the sale of buildings to create estate liquidity upon the owner’s death. Utilizing life insurance would create liquidity without interrupting a broader financial plan.

A recent article in Retirement Advisor magazine highlights the estate planning blunders of several high net worth people and they serve as fairly interesting examples of where estate planning issues may present themselves. Take the recently deceased Philip Seymour Hoffman: He wrote his Will after his first child with Mimi O’Donnell, his companion who he never married. However, he never updated his Will to include the two children he had next. Besides that glaring blunder, by not marrying Ms. O’Donnell, Mr. Hoffman’s estate will owe tax on the full amount above the current 5.34M estate tax exclusion. That could have been avoided (deferred) until her death had they been married and he left the bulk of his estate to Ms. O’Donnell. Why we do we know all of this? Because he didn’t have a revocable trust (the benefits of which are discussed above) all the details of his estate are public information.

The point of all this is that you should take the time and energy to consult with a professional about your estate. We work too hard earning and savings money in our lifetimes to unnecessarily forfeit so much in taxes just because we didn’t want to take a few minutes and get organized.

As always, feel free to contact me with any questions or concern.


Russell Bailyn

Wealth Manager
Premier Wealth Advisors, LLC
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673

Securities offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Financial Planning offered through First Allied Advisory Services & Premier Wealth Advisors, Inc. Premier Wealth Advisors, Inc is a Registered Investment Advisor. First Allied Securities & Premier Wealth Advisors, Inc. are not affiliated entities.
This discussion is for informational purposes only and is not intended to be specific advice. For specific advice, consider consulting with an estate planning attorney and/or tax professional.

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