Estate planning pays off in taxes and peace of mind

Especially important in Washington state because of state estate tax

Planning your estate can be daunting. Aside from taxes, you may be considering family issues, fairness, asset protection, and effective wealth transfer. But you want to be certain that—if your plan involves gifting current assets, which can be tax-effective—you leave yourself with enough assets and income so you remain financially independent for as long as you live and can keep doing what you love to do.

Many people have had efficient and effective estate plans proposed to them by their attorneys or Certified Public Accountants, but they fail to implement the plans because they don’t want to face the related considerations. Others assume estate planning is only for those with large, taxable estates and that their own estate is too small to be taxed.

While it’s true that the federal estate tax affects only those with estates worth over $5.34 million ($10.68 million for couples), Washington state taxes affect estates over $2 million, ($4 million for couples) making even more estates subject to state inheritance and estate taxes.

But taxes aren’t the only reason for estate planning. It can also help you:

• Make sure your assets go where you want them to go.

• Control assets while you are alive but incapacitated.

• Control assets after death.

• Reduce the emotional and financial burden on your heirs.

• Reduce feuding over your estate among your beneficiaries.

• Increase the amount available for charitable donations.

• Avoid the cost and delay of probate.

• Provide a guardian to minor children.

Creating a financial plan is an excellent way to start your estate planning process, since a good one will pull together information on all your assets and the potential value of your estate. Once your financial information is consolidated, you can run various scenarios through your financial plan to answer questions such as:

• Can I meet my personal financial goals through the sale or transition of my business? A financial plan can help you understand how much money you need to get out of your business and what you can afford to give to your beneficiaries.

• What’s my estate worth today, and how much will it be worth in the future? Of course, all projections are just that: projections. There’s no guarantee that your assets will live up to its projections. But with a financial plan you can project various return assumptions to look at best- and worst-case scenarios so you’re covered in event of the latter.

• Will I have excess wealth that I can pass on to future generations without the concern that I’ll need it later? Estate planning may include current gifting, and a financial plan can help you determine whether you can afford to gift assets now or need to hold on to them for your own financial stability.

• Can I afford to make charitable gifts now or include a charitable gift in my estate? It can be very rewarding to see your charitable gift in action. A financial plan can help you understand what you can afford to give now and what you may have to wait to give until later. If your financial plan suggests you can’t afford a large gift during your lifetime, including a charitable gift in your estate plan is a simple way to support your favorite causes without affecting your financial security.

A good financial plan can consolidate and clarify your financial picture, help you properly address the intricacies of the estate planning options that an attorney or CPA may present you with, and help you make informed decisions.

As with any truly effective plan, your financial plan is a team effort: You, your financial planner, CPA, and estate planning attorney should work together. Despite what many think, this can be done efficiently, without incurring unnecessary fees. The money you may save within your estate—and the peace of mind a financial plan and good estate plan provide—will far outweigh the expense.

For information on attorneys, professional advisors, and other resources that can help you with financial and estate planning, visit the following websites:

• Estate Planning Council of Seattle, http://www.epcseattle.org

• Financial Planning Association, http://www.fpanet.org

• East King County Estate Planning Council, http://www.ekcepc.org

• Snohomish Estate Planning Council, http://www.scepc.org

• Tacoma Estate Planning Council, http://www.tacomaestateplanning.org

[Kathryn Garrison, CFP®, is a senior financial advisor with Moss Adams Wealth Advisors LLC and a member of the Estate Planning Council of Seattle. Reach her at 206-302-6752 or kathryn.garrison@mossadams.com.]

Editor's Picks