Death and Taxes – 3 Reasons Why You Need an Estate Plan

Patrick Cote |

By: Patrick Cote

Ben Franklin famously said nothing is certain except death and taxes.  Given that estate plans are focused on both, you would think we would all want to get an estate plan in place.  However, since they involve paperwork and thinking about our own death, it is no surprise that many of us have not updated, or even started, our estate plans.  The pandemic has made many of us more aware of this topic, so there has been a recent surge in people doing their estate plans.

If you are reading this article, you probably need to have an estate plan.  While the estate plans for wealthy families are typically complicated affairs with multiple trusts, estate attorneys will often suggest a basic estate plan that includes the following four items:

  1. Will
  2. Healthcare directive
  3. Durable power of attorney
  4. Revocable living trust (particularly for parents of children who are minors)

In addition, some estate attorneys are now encouraging their clients to set up authorization to access digital/online assets.

There are 3 main reasons why you need an estate plan:

#1 Taxes

You may have heard that the federal estate tax is 40%, with an exemption of $11.58M, doubling to $23.16M for married filers.  However, that federal exemption is scheduled to be reduced by 50% after 2025.  There have also been discussions about possible changes to the estate tax law that would involve raising the tax rate to 55% and lowering the exemption to $3.5M.

In addition, some states have their own estate tax and exemption levels.  For example, Massachusetts has an estate tax that kicks in at $1M, with a graduated estate tax rate that goes up to 16%.

When you consider that the estate for each person includes all of their assets, such as their home, life insurance, investment accounts, other properties, etc., it is easy to see how the amount quickly adds up, so even people who are not “rich” would need an estate plan.

#2 Help your loved ones

When people pass away without an estate plan, including without a will, it can make settling their affairs more cumbersome for their survivors.  It can involve going through probate court, which also means the information becomes public.  At a minimum, it can mean additional work for your loved ones, during a time that might be quite difficult for them.

There are additional considerations for parents of children who are minors, such as who will take care of the children if both parents are deceased.  It is important to identify the people who will take care of the children, as well as the people who will take care of the assets on the children’s behalf (who would ideally not be the same people).

#3 Ensure your assets are distributed as you wish them to be

If you don’t have a will, then a probate court will decide how your assets are divided between potential heirs.  That split may not be the way you would prefer.  If you have remarried, it can become even more important to make sure that your intentions are clear in the estate plan, as the split of assets becomes more complicated across family.

Many assets are not passed by will, such as retirement plans, living trusts or life insurance – these assets will have designated beneficiaries or may have co-ownership in the case of investment accounts or real estate.  As part of the estate plan, it is important to verify the beneficiaries for these assets.

The bottom line is that it is important to make sure that you have at least a basic estate plan in place.