A Refresher on Estate Planning Basics Brogan Financial

Estate planning is a big deal. It’s a way for us to leave what we’ve built over the course of our lives to our loved ones. Gifts of property and belongings can pass on a sense of family, care, and love and can help your loved ones financially.

So, what is the first and most important thing to do when it comes to estate planning? This may seem obvious, but the first thing is to do it. Plan out your estate. Think about who is getting what, and be specific about the details. Sure, there are plenty of other aspects to estate planning that matter, but if you have no plan at all and nothing set up, then none of those other things matter.

Drafting and updating your legal documents is the process for putting your thoughts and wishes into writing. Some of the most overlooked legal documents are the powers-of-attorney. Both the medical and financial power-of-attorney designate who will take care of you when you are alive but cannot handle things on your own. The other essential legal documents are your will and advanced medical directive.

Another thing to consider, especially when it comes to your retirement accounts, is to ensure that you have the right beneficiaries listed.  You may wish to consider naming contingent beneficiaries on your retirement accounts.[1] The contingent beneficiaries will inherit the funds in your accounts if one of your primary beneficiaries is not able to receive them.[1] This allows you to pass on retirement accounts more seamlessly after your passing.

Another major concern when it comes to estate planning is taxes. Planning around taxes is a key part of anyone’s financial life. Tax mistakes can lead to the loss of more of your hard-earned money than you expected. The biggest tax bill most heirs pay on inheritance is the income tax due on your retirement accounts. Most if not all of these accounts (except for Roth IRAs) have not paid the income taxes; consequently, when your heirs take distributions, they must declare the income and pay the income tax.

If you have a large estate that is subject to estate tax, one thing you can do to avoid some estate tax is to give away some of your money before you pass away. The limit for tax-free gifts per year as of 2023 is $17,000.[2] This means that you can give any individual up to $17,000 per year. However, if you don’t give gifts while you’re alive, this tax-exempt limit doesn’t apply, and the full estate tax will be levied on whatever you leave to your heirs that is above the current exemption amount of $12.92 million.[2] If you are concerned about the amount of taxes that will be taken out of your estate, gifts can be a great way to mitigate some of those taxes.

Estate planning is a complicated affair. Even small mistakes can lead to big headaches for your loved ones. If you are looking for someone to help guide you through the estate and retirement planning process, consider reaching out to one of our advisors today for a complimentary review of your situation.


[1] https://www.kiplinger.com/personal-finance/the-basics-of-estate-planning
[2] https://www.forbes.com/sites/christinefletcher/2023/02/01/8-tips-for-tax-free-gifting-in-2023/?sh=4b469604a99f