Structuring your estate is a very important part of what we provide at Decker Retirement Planning. We have a network of attorneys, or we can work with your attorney, to help ensure that your final documents are written to your family’s best financial advantage, minimizing taxation as much as possible.
As an independent firm and a fiduciary, we are bound to recommend only what is in your family’s—and extended family’s—best financial interests. After all, you want to make sure that your legacy and final wishes are carried out correctly and that your loved ones are provided for in the most tax-advantaged manner possible. Thoughtful estate planning is critical when it comes to efficient wealth transfer.
Dynasty Trusts
Who doesn’t have a soft spot when it comes to grandchildren? Trouble is, when you name them or transfer an asset to them, the value of the asset is subject to something called a generation-skipping tax—a federal tax that is currently 49%!
A Dynasty Trust might be the solution. Dynasty Trusts are designed to last several generations and are per stirpes, meaning they stay with the bloodline heirs and are protected from divorce. Most often, Dynasty Trusts are set up to help grandchildren and great-grandchildren with college expenses like tuition and books, but you decide who receives the money, when, and how.
Leaving Money and Memories
But, what about the next generation—your sons and daughters? When it comes to estate planning at Decker Retirement Planning, we use what we call a good-better-best approach for your children.
As in, it’s good to give your children an inheritance; it’s better to have experiences while you’re still alive so that you can create and share memories; and it’s best to leave an inheritance, create the memories, and make sure you have the income that you need and want for the rest of your life so that you’re not sacrificing your retirement lifestyle.
What do mean by this? Well, you could actually benefit your heirs by spending more now.
Estate Exclusions
Depending on the tax laws in your state, you may find that spending down part of your estate may actually save your heirs money on estate taxes! This can seem counterintuitive, especially after you’ve spent your life saving and putting money away, so let’s look at a few hypothetical examples.
Remember, it’s important not to sacrifice your own retirement during your lifetime, but instead, work with us to design a retirement income and distribution plan that will last as long as you do. We take a look at all your sources of income—Social Security, pensions, rental real estate, etc.—deduct what you’ll need for taxes, and design-in a 3% yearly cost of living factor to protect you from inflation.
After that, we address estate planning. Once you know that you will be taken care of for the rest of your life, you can plan the most tax-advantaged way to provide for your heirs.
Let’s say the state of Washington allows a $2.2 million exclusion on estate tax. (It’s pretty easy to have an estate worth millions in Washington, given current home values.)
Married couples can potentially exclude $4.4 million using the proper estate planning methods.
Example 1 – Estate Worth $3 Million
First spouse dies with no exclusion clause in their will and surviving spouse inherits the estate. When the second spouse dies, the $2.2 million exclusion on estate taxes kicks in, leaving heirs with an exposure of $800,000.
At 18%, that’s $144,000 the heirs will have to come up with in cash in 9 months to pay estate taxes.
Example 2 – Estate Worth $3 Million
First spouse dies with a will in place with language that states that a decedent’s trust is now created using the $2.2 million exclusion. When the second spouse dies, the last-to-die exclusion in the decedent’s trust shelters another $2.2 million.
Zero estate tax is owed by the heirs.
Example 3 – Estate Worth $5 Million
Both spouses have passed away, with a proper will in place, allowing them to have sheltered $4.4 million. With an estate value of $5 million, the heirs will have an estate tax exposure of $600,000.
Instead, while they were still alive, the parents could have spent $50,000 per year for 12 years on extended family trips to Europe, exotic cruises, or luxurious family reunions—creating priceless memories—and saving on estate taxes.
See why we encourage you to speak with a retirement planning specialist with expertise in estate planning? Call Decker Retirement Planning at 1.800.261.9446 to find out what we can do for you.
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