For most people, the word “estate” brings up images of multi-million-dollar mansions. Perhaps this is why nearly half of Americans believe estate planning is only for wealthy people, according to a 2016 survey from WealthCounsel.
In the context of estate planning, “estate” means everything a person owns or controls: personal property, real estate, bank accounts, insurance policies, businesses, certain trust accounts and debts. That’s why estate planning is relevant for most adults, especially those with children, businesses or assets they’d want to see go to the right people in the event of their death.
Enlist an estate planning attorney, tax professional and financial advisor to help you create and execute a plan that best fits your situation.
For more information, attend the free seminar, “Estate Planning Essentials,” conducted by certified financial planner John Melchor with Jackson National Life Distributors, at 11:30 a.m. March 24 at Pomaikai Ballrooms in Dole Cannery.
Learn how you can preserve your estate by implementing some simple trust strategies.
Register at hawaiistatefcu.com/events.
It can be difficult to know where to start. Make sure to check the following items off your list.
>> Prepare your will: According to WealthCounsel, 60 percent of Americans don’t have a will. Many people wrongly assume that they don’t need a will because their largest accounts have beneficiaries named. However, a will addresses your most precious assets such as your home, family heirlooms and, most importantly, your children.
A will is the only document that can designate a guardian for your children in the event of your death. Without a legally binding document, the courts decide who will raise your children.
>> Sign a power of attorney: If you were to become incapacitated, who would pay your bills, handle your money and deal with your assets? Signing a durable power of attorney appoints a loved one of your choosing, usually a spouse, adult child, sibling or close friend, to make financial decisions on your behalf.
The agent you designate would not have ownership rights over your assets. He or she would have a duty to use your money for your benefit only. A power of attorney expires at death, and any money left in the account would become part of your estate.
>> Consider life insurance: If you don’t have life insurance, consider it as part of your estate planning. Life insurance can provide financial security to the people you leave behind, especially if you have children and a spouse who relies on your income to pay the mortgage and other expenses.
Life insurance can also be used to pay potential estate taxes. If your beneficiaries will have to pay a significant amount in estate taxes, you can take out a life insurance policy in that amount. Your beneficiary will be able to use the tax-free insurance proceeds to pay taxes on your estate.
>> Minimize taxes: Use tax- efficient strategies to help lower your taxable assets. If you know that you’d like to leave money for your children and grandchildren, consider gifting that amount to them while you’re still alive. You can gift up to $15,000 per person each year without paying gift taxes. Placing a gift in a 529 college saving account allows for tax-free growth if the funds are used for educational expenses.
If you plan on leaving some of your estate to charities, be sure to designate taxable assets for this donation. Leave tax-free assets, such as your Roth IRA and life insurance, to your heirs to reduce their tax burden.
David Kimura is the CUSO Financial Services LP (CFS) investment program manager for Hawaii State Investment Services at Hawaii State Federal Credit Union providing investment, retirement and financial planning services to members. He can be reached at firstname.lastname@example.org or (808) 447- 8083.