Skip to main content

Category: Estate Planning

How to Keep Money in Your Family – Estate Planning

You’ve invested your life into caring for your family’s wellbeing. You cherish them and want them to mature into smart, healthy, successful adults. Naturally, as they become adults and grow older, your authority over them recedes. They make their own decisions, and you just hope it’s for the best.

Your feelings don’t change. They are your children. And they’ll always be your children. The same goes for your closest, most intimate friends. You want their futures to be safe and secure; you want them to prosper in life. And what better way to show your devotion and appreciation than by ensuring your hard-earned money and investments go to them—after your passing?

In other words, how do you keep your money in your family or within your circle of closest friends?

Estate planning is the key. Why is planning your estate so important?[i]

  • You avoid probate court. In many states, probate fees can reach 5% of the value of the estate. For an estate valued at $400,000, legal fees may reach $20,000.[ii]
  • Planning your estate will lessen the tax burden on your heirs. If you die without a will, the laws of your state, not you, govern how your estate is distributed. However, inheritance laws generally favor spouses, domestic partners, and blood relatives. But why leave it to the legal system to decide?[iii]
  • Many people who are beginning to plan their estates seek professional financial advice following the loss of a loved one or a close friend. While wise, the timing may be off. The best time to start estate planning is immediately—to avoid potential worst-case scenarios, such as mental decline or sudden death of a spouse or loved one.
  • Comprehensive estate planning, ironically, helps protect beneficiaries, both adult and children. With adults, a plan helps guard against bad financial decisions later or potential credit problems. With children, it designates guardians or conservators to protect minors’ financial interests.[iv]
  • A solid estate plan with asset protection provisions may help shield your assets from potential creditors.[v]

You’re planning to enjoy many more years with your family and friends. What can you do now to ensure your money goes to loved ones—as opposed to Uncle Sam?

Here are 5 ways to maximize your family money in the here and now:[vi]

  1. You can spend your money and your assets, which will ultimately reduce your tax burden and benefit your family. Obviously, your first priority is to your loved ones, not to bolstering government coffers. The problem, however, is that you may live a good, long life, and your goal is to ensure you don’t outlive your wealth. This option is worthwhile if you have plenty of cash reserves and a robust estate.
  2. Gifts pose the same challenge if your estate and your assets have the potential for a long-shelf life. While giving to family and friends is noble, the IRS establishes restrictions on giving levels. You may give up to $15,000 each to individuals or charities before having to file gift tax returns. The maximum lifetime gift tax exemption is $11.18 million.[vii]
  3. You may lend to family members and friends. However, to stay IRS compliant, you should draft a loan note that includes the loan amount, payback date, interest rate, and any collateral or security. This enables you to avoid the IRS’s gift classification.[viii]
  4. You may pay wages to your family; 4 in 5 older Americans suffer from at least 1 chronic disease and may need care.[ix] By 2030, more than 1 in 5 Americans will be over the age of 65.[x] The IRS allows for the paying of wages to family members, which helps build their Social Security earnings record.[xi] Services may include providing home health care or performing other household or small business-related work.
  5. You can create a life estate deed, which transfers the family’s house to a child while the parents retain the right to live in the house. Following the death of the parents, children don’t have to go through lengthy probate proceedings. The home transfers to children—beneficiaries or remaindermen—as a gift.[xii] A life estate deed may also remove the home from consideration as a personal asset when applying for Medicaid assistance for long-term care needs.[xiii]

Seek guidance from a financial professional to learn more about your rights and opportunities to provide for your family—even in future generations.

Contact CapSouth at 800.929.1001 or visit our website at www.capsouthwm.com to learn more about CapSouth or to speak with an advisor about estate planning.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

[1] https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp

[1] https://www.nolo.com/legal-encyclopedia/why-avoid-probate-29861.html

[1] https://estate.findlaw.com/wills/what-happens-if-i-die-without-a-will-.html http://money.cnn.com/2016/04/28/pf/dying-without-a-will-prince/index.html

[1] https://www.thebalance.com/what-does-a-guardian-or-conservator-of-a-minor-do-3505167

[1] https://www.thebalance.com/what-is-asset-protection-3505066

[1] https://www.thebalance.com/how-to-minimize-death-taxes-3505688

[1] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

http://www.pgdc.com/g/boston-foundation/news/2018-estate-gift-and-gst-tax-lifetime-exclusion-11180000-taxpayer

[i] https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp

[ii] https://www.nolo.com/legal-encyclopedia/why-avoid-probate-29861.html

[iii] https://estate.findlaw.com/wills/what-happens-if-i-die-without-a-will-.html http://money.cnn.com/2016/04/28/pf/dying-without-a-will-prince/index.html

[iv] https://www.thebalance.com/what-does-a-guardian-or-conservator-of-a-minor-do-3505167

[v] https://www.thebalance.com/what-is-asset-protection-3505066

[vi] https://www.thebalance.com/how-to-minimize-death-taxes-3505688

[vii] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

http://www.pgdc.com/g/boston-foundation/news/2018-estate-gift-and-gst-tax-lifetime-exclusion-11180000-taxpayer
http://web20.nixonpeabody.com/trusts/Lists/Posts/Post.aspx?ID=276

[viii] https://blog.taxact.com/family-loans-lend-my-kids-money/

[ix] https://www.ncoa.org/news/resources-for-reporters/get-the-facts/healthy-aging-facts/

[x] https://www.ncbi.nlm.nih.gov/books/NBK396397/

[xi] https://www.irs.gov/businesses/small-businesses-self-employed/family-help

[xii] https://www.thebalance.com/enhanced-life-estate-deed-3505518

[xiii] https://www.agingcare.com/articles/protecting-parents-home-from-medicaid-183157.htm

Where Will Your Retirement Money Come From

For many people, retirement income may come from a variety of sources. Here’s a quick review of six primary sources:

 

Social Security

Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. (If there are fewer than 35 years of earnings, non-earning years may be counted in the calculation.) In mid-2018, the average monthly benefit was $1,413.[i],[ii]

 

Personal Savings and Investments

These resources can also provide income during retirement. Depending on your risk tolerance, time horizon and goals, you may want investments that offer steady monthly income over vehicles giving you the potential for double-digit returns. A quick chat with a financial professional can help you understand your risk tolerance as you approach retirement.

 

Individual Retirement Accounts

Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA are commonly deductible. Distributions from a traditional IRA are taxed as ordinary income, and if taken before age 59½, may be subject to a federal income tax penalty. Once you reach age 70½, these accounts require mandatory withdrawals.[iii]

 

Roth IRAs were created in 1997. Contributions you make to a Roth IRA are non-deductible, as they are made using money that has already been taxed. Sometimes, only partial Roth IRA contributions can be made by taxpayers with six-figure incomes; some especially high-earning individuals and couples cannot direct money into Roth IRAs at all. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Roth IRAs do not have any required minimum distribution rules.3

 

Defined Contribution Plans

Many workers are eligible to participate in a defined-contribution plan such as a 401(k), 403(b), or 457 plan. Eligible workers can set aside a portion of their pre-tax income into an account, and the invested assets may accumulate with taxes deferred, year after year. Generally, once you reach age 70½, you must begin taking required minimum distributions from these workplace plans.[iv] Some plans may also include an option to contribute after tax income.

 

Defined Benefit Plans

Defined benefit plans are “traditional” pensions – employer-sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on specific factors, such as salary history and duration of employment. Relatively few employers offer these kinds of plans today.[v]

 

Continued Employment

In a recent survey, 68% of workers stated that they planned to keep working in retirement. In contrast, only 26% of retirees reported that continued employment was a major or minor source of retirement income. Many retirees choose to continue working as a way to stay active and socially engaged. Choosing to work during retirement, however, is a personal decision that should be made after considering your finances and personal goals.[vi]

 

To speak to a CapSouth advisor about retirement planning contact our office at 800.929.1101 or visit our website at http://capsouthwm.com/services/financial-estate-planning/

 

Utilize our free financial calculator at https://capsouthwm.com/resources-guides/financial-calculators/

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security

 

[ii] https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

 

[iii] https://www.cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html

 

[iv] https://www.fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx

 

[v] https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp

 

[vi] https://www.investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp

 

Why Do You Need a Will?

According to the global analytics firm Gallup, only about 44% of Americans have created a will.[i] This finding may not surprise you. After all, no one wants to be reminded of their mortality or dwell on what might happen upon their death, and writing a last will and testament is seldom on a Millennial or Gen Xer’s to-do list. What may surprise you is the statistic cited by personal finance website The Balance: around 35% of Americans 65 and older lack wills.[ii]

A Will Is an Instrument of Power

By creating one, you gain control over the distribution of your assets. If you die without one, the state decides what becomes of your property, without regard to your priorities.

A will is a legal document by which an individual or a couple (known as “testator”) identifies their wishes regarding the distribution of their assets after death. A will can typically be broken down into four parts.

  • Executors — Most wills begin by naming an executor. Executors are responsible for carrying out the wishes outlined in a will. This involves assessing the value of the estate, gathering the assets, paying inheritance tax and other debts (if necessary), and distributing assets among beneficiaries. It is recommended that you name an alternate executor in case your first choice is unable to fulfill the obligation. Some families name multiple children as co-executors, with the intention of thwarting sibling discord; this can introduce a logistical headache, as all the executors must act unanimously.2
  • Guardians — A will allows you to designate a guardian for your minor children. The designated guardian you appoint must be able to assume the responsibility. For many people, this is the most important part of a will, since if you die without naming a guardian, the courts will decide who takes care of your children.
  • Gifts — This section enables you to identify people or organizations to whom you wish to give gifts of money or specific possessions, such as jewelry or a car. You can also specify conditional gifts, such as a sum of money to a young daughter, but only when she reaches a certain age.
  • Estate — Your estate encompasses everything you own, including real property, financial investments, cash, and personal possessions. Once you have identified specific gifts you would like to distribute, you can apportion the rest of your estate in equal shares among your heirs, or you can split it into percentages. For example, you may decide to give 45% each to two children and the remaining 10% to your sibling.

A Do-It-Yourself Will May Be Acceptable, It May Not Be Advisable.

You have worked hard to create a legacy for your loved ones. You deserve to decide how that legacy is sustained.

Remember, A Will Puts Power In Your Hands.

The law does not require that a will be drawn up by a professional, so you could create your own will, with or without using a template. The problem is that if you make a mistake, you will not be around to correct it. When you draft a will, consider enlisting the help of a legal, tax, or financial professional who may be able to offer you additional insight, especially if you have a large estate or a complex family situation.

To learn more about estate planning please call our office to meet with a CapSouth advisor or visit our website.

[i] https://news.gallup.com/poll/191651/majority-not.aspx

[ii] https://www.thebalance.com/wills-4073967

https://www.nolo.com/legal-encyclopedia/naming-more-one-executor.html

Help us keep you informed!

Let us do the work and keep you updated! Sign up for the CapSouth financial updates.

You have Successfully Subscribed!