Estate planning — taking a systematic approach to preparing for the distribution of assets after a person’s life ends — is an important part of financial planning. It can be easy to delay estate planning, since it requires facing up to the inevitability of death.
This delay may be very costly if it leads to incomplete plans, however. When considering how your estate will be distributed, a well-organized financial plan can make a big difference in how your assets are allocated to your loved ones.
Estate planning basics
In order to maximize the value of your estate, you need to analyze how each asset will pass to your beneficiaries. It’s important for you to plan. You’ll want to be thoroughly informed on what actions you can take or situations you can plan for now to make sure you maximize the amounts your beneficiaries will receive.
What is a trust?
A trust is a legal entity that owns and manages property for the benefit of another, a contract you establish with someone who will own and manage certain assets for you and the good of the beneficiaries you choose. The person creating the trust, called the grantor, establishes the trust by transferring assets to the trust and nominating a person, the trustee, to manage.
The trustee agrees to manage the trust according to the rules the grantor sets out in the document when the trust is created. The trust document also defines the beneficiaries of the trust — the individuals or organizations to whom the trust will provide benefits.
In order for assets to be managed by a trust, they must be titled in the name of the trust, rather than in the name of the grantor. This can involve establishing separate bank accounts, re-titling real property, or re-registering securities*. This is an important step in protecting the assets.
Why create a trust?
A trust allows its grantor to set up separate legal management of the assets in the trust. This can have many benefits in estate planning, including helping to:
- Avoid probate
- Remove assets from the taxable estate2
- Protect assets from creditors and liability
- Provide ongoing support to beneficiaries
- Promote personal values or create a charitable legacy
Legacy planning and charitable giving
Do you want to leave something to those who have helped you along the way? Legacy planning — a more comprehensive form of estate planning — can help distribute your assets to the people and organizations you choose, and can perpetuate generational wealth.
An important part of legacy planning involves permanent life insurance. Permanent Life insurance can help in two ways: It may build cash value you can use generally income-tax free for a family’s loss of income, mortgage costs or educational needs, or it can be used to provide a financial legacy for beneficiaries. Life insurance can also help cover probate and estate tax costs, leaving your property or business intact.
No matter your income level, you can use life insurance to meet both personal and charitable objectives. Legacy planning offers numerous techniques that make significant charitable contributions possible even for families of modest means, while preserving income or assets for you and your family.
There are a variety of ways to set up a charitable gift using life insurance:
Donate an existing policy — Consider donating a policy you no longer need. You continue paying the premiums with the amount equal to each premium payment being a gift to the charity or the charity may make premium payments in expectation of the eventual death benefit. The charity becomes both owner and beneficiary of your policy.
Purchase a new policy — You may purchase a permanent life insurance policy and donate it to a charity. The charity may use the policy’s cash value while you’re alive and receive the policy’s death benefit when you die.
Leave a bequest at death — If your estate is the beneficiary of your policy, your will can direct use of some or all of the proceeds of your life insurance to make a gift to charity, free of any federal estate tax. This will be true whether you or the charity owns the policy.
Note that you can also designate your favorite organizations as beneficiaries on an existing policy.
What will you leave behind?
You’ve worked hard, and now you are focused on leaving the most you can to the people you care about. Whether you want to leave money for a grandchild to put toward a college education or give a gift to a charity, you want to do the most you can with the money you plan to pass along.
Contact us at 858-472-9200 today to help build a customized package that includes life, business and personal coverage that can help meet your unique needs.