Most adults generally recognize the necessity of having a well-prepared will. This ensures our final wishes, with respect to our estate, are carried out by an executor. However, a frequent oversight is the failure to undertake at least some degree of basic estate planning, in order to help formulate and complement the contents of the will.
Estate planning should begin with life insurance coverage. While most retirees will have no need to pay the high, age-related premiums of life insurance, those with growing families do need to ensure adequate coverage. The objective should be for the family to have adequate funds to both pay off all debts, and maintain their lifestyle.
After calculating the amount needed for the family’s protection, obtain the lowest-possible cost coverage through inexpensive 10 or 20-year term insurance. Whole Life policies, which combine a savings feature with life insurance, are far more expensive and generally not the best option.
Retirees too, may in some circumstances, find a “Last-to-Die” term policy desirable. Consider this: a retiree owns a cherished family cottage, purchased many years ago at low cost, but now worth many hundreds of thousands of dollars. The estate will be taxed on this property’s capital gains. The heirs may not have the cash available to pay the large tax bill unless they first sell the cottage. A “Last-to-Die” policy, available at surprisingly reasonable cost to healthy seniors, may be the solution. It can not only cover the taxes, but also preserve the cottage as a legacy for the family.
In some circumstances, it may be advisable for a will to contain the terms of a Testamentary Trust. This provides for the establishment of a Trust which, upon the death of the grantor, is designed to hold the after-tax proceeds of the estate, invest, and over time, distribute its contents to the designated beneficiaries, in a manner specified by the grantor. A Testamentary Trust may have most application in situations where the beneficiaries are minors, or other dependants, perhaps with special needs and/or disabilities.
A Living Trust, more formally known as an “Inter Vivos” Trust, may be appropriate for those with a high net worth who, while still living, wish to share some of their wealth with members of their family, on a tax-effective basis. Acting on this will require professional accounting and legal advice.
Another key element of estate planning for those fortunate enough to have the resources, is to consider, while still living, financial gifts to family members.
These are just a few examples. A little forethought and effort will ensure that family and other heirs receive the exact benefits we wish to bestow on them, minimizing the tax consequences .
A retired corporate executive, enjoying post-retirement as an independent financial consultant, Peter Dolezal is the author of three books.