Estate Planning: An Introduction

By definition, estate planning is a process designed to help you manage and preserve your assets while you arealive, and to conserve and control their distribution after your death according to your goals and objectives. Butwhat estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, lifestage, goals, and many other factors determine your particular estate planning needs. For example, you mayhave a small estate and may be concerned only that certain people receive particular things. A simple will isprobably all you'll need. Or, you may have a large estate, and minimizing any potential estate tax impact is yourforemost goal. Here, you'll need to use more sophisticated techniques in your estate plan, such as a trust.

To help you understand what estate planning means to you, the following sections address some estate planningneeds that are common among some very broad groups of individuals. Think of these suggestions as simply apoint in the right direction, and then seek professional advice to implement the right plan for you.

Over 18

Since incapacity can strike anyone at anytime, all adults over 18 should consider having:

• A durable power of attorney: This document lets you name someone to manage your property for you incase you become incapacitated and cannot do so.
• An advance medical directive: The three main types of advance medical directives are (1) a living will, (2) adurable power of attorney for health care (also known as a health-care proxy), and (3) a Do NotResuscitate order. Be aware that not all states allow each kind of medical directive, so make sure youexecute one that will be effective for you.

Young and single

If you're young and single, you may not need much estate planning. But if you have some material possessions,you should at least write a will. If you don't, the wealth you leave behind if you die will likely go to your parents,and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g.,your significant other, siblings, other relatives, or favorite charity).

Unmarried couples

You've committed to a life partner but aren't legally married. For you, a will is essential if you want your property topass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit yourproperty, and your partner may get nothing. If you share certain property, such as a house or car, you mayconsider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, thejointly held property will pass to the surviving partner automatically.

Married couples

For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust,in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and lateryears, the executor of a deceased spouse's estate can transfer any unused estate tax exclusion amount to thesurviving spouse without such planning.

You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to yourspouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization ofthe first to die's estate tax exclusion, and a credit shelter trust created at the first spouse's death may still beadvantageous for several reasons:

• Portability may be lost if the surviving spouse remarries and is later widowed again
• The trust can protect any appreciation of assets from estate tax at the second spouse's death
• The trust can provide protection of assets from the reach of the surviving spouse's creditors
• Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fullyleverage the GST exemptions of both spouses

Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction isnot allowed if the recipient spouse is a non-citizen spouse (but a $185,000 annual exclusion, for 2024 ($175,000for 2023), is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT)will qualify for the marital deduction.

Married with children

If you're married and have children, you and your spouse should each have your own will. For you, wills are vitalbecause you can name a guardian for your minor children in case both of you die simultaneously. If you fail toname a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without awill, some states dictate that at your death some of your property goes to your children and not to your spouse. Ifminor children inherit directly, the surviving parent will need court permission to manage the money for them.

You may also want to consult an attorney about establishing a trust to manage your children's assets in the eventthat both you and your spouse die at the same time.

You may also need life insurance. Your surviving spouse may not be able to support the family on his or her ownand may need to replace your earnings to maintain the family.

Comfortable and looking forward to retirement

If you're in your 30s, you may be feeling comfortable. You've accumulated some wealth and you're thinking aboutretirement. Here's where estate planning overlaps with retirement planning. It's just as important to plan to carefor yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You shouldkeep in mind that even though Social Security may be around when you retire, those benefits alone may notprovide enough income for your retirement years. Consider saving some of your accumulated wealth using otherretirement and deferred vehicles, such as an individual retirement account (IRA).

Wealthy and worried

Depending on the size of your estate, you may need to be concerned about estate taxes.For 2024, $13,610,000 ($12,920,000 for 2023) is effectively excluded from the federal gift and estate tax. Estatesover that amount may be subject to the tax at a top rate of 40 percent.

Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers ofwealth made to grandchildren (and lower generations). For 2024, the GST tax exemption is also $13,610,000($12,920,000 for 2023), and the top tax rate is 40 percent.

Note:The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basicexclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert totheir pre-2018 levels and cut by about one-half.

Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws ineffect in the state in which you are domiciled.

Elderly or ill

If you're elderly or ill, you'll want to write a will or update your existing one, consider a revocable living trust, andmake sure you have a durable power of attorney and a health-care directive. Talk with your family about yourwishes, and make sure they have copies of your important papers or know where to locate them.

Distributions from traditional retirement savings accounts and non-qualified distributions from Roth accounts will be subject to income tax. In addition, distributions prior to age 59½ will be subject to a 10% penalty, unless an exception applies.

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This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The material is general in nature. Any examples given are for illustrative purposes only. Individual cases will vary. Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Prepared by Broadridge Advisor Solutions Copyright 2024.