Avoid Hidden Losses in Your Estate

“Estate shrinkage” can be a serious problem for many American families.  We’re talking about the depletion of assets that occurs upon a person’s death, brought on by:

• Probate costs;

• Forced sale of assets;

• Insufficient “estate liquidity;”

• Income taxes;

• State death taxes;

• Federal estate tax.

Estates of all sizes are at risk for unforeseen losses and expense.  How can you protect your beneficiaries?  Some reduction is inevitable, but you can cushion its impact.

•Calculate the shrinkage.  Ask your advisers to forecast your estate settlement costs – taxes, administration expenses and debts. 

• Plan for estate liquidity.  Arrange for cash reserves (or assets readily convertible to cash) to pay the expenses that are likely occur.  Many estates have been forced into selling assets at “fire sale” prices to cover taxes, debts and other costs.  Strategies could include a savings program, investments, life insurance or a combination of all three.

• Plan for the orderly transition of any business interests.  Consider a buy-sell agreement with partners or shareholders that will keep the business intact, preserve its value and provide cash payments to your family.

• Plan to reduce probate costs.  Probate is the word used to describe the administration of a person’s estate, which includes determining if a valid will exists. The settlement of an estate can be a long, complex and sometimes expensive procedure.  Certain assets don’t go through probate, however:  life insurance, most jointly owned property, IRAs or other accounts with death beneficiary designations.  Furthermore, assets you transfer to a revocable living trust during life will not be subject to the delays, expenses and restrictions of probate.  These trusts may be especially helpful to people who own real estate in several different states and face “multiple probate.”  Lifetime gifts to heirs and charities escape probate and may reduce taxes, as well.

• Look for ways to reduce taxes. You can protect your estate (or that of a surviving spouse) against federal estate tax or state “death taxes” through lifetime gifts to family, trusts designed to reduce taxes and probate costs, and use of income-tax-burdened assets (such as IRAs and savings bonds) to satisfy charitable gifts you plan to make from your estate.

 

 

Please contact us for more information.