7 Estate Planning Strategies to Implement in 2021

Estate planning strategies are something people rarely think about – we do not tend to dwell on the consequences of our deaths or what might happen to our families if we are gone. However, despite a deadly pandemic, less than a third of Americans have a will, and even fewer have a personalized, comprehensive estate plan with an end-of-life directive.

Suppose the loss of a loved one or a recent tragedy has had you thinking about your plans for the end. In that case, knowing the difference between innovative estate planning strategies and avoidable mistakes can be vital for saving yourself and your family a lot of time, grief, and money. There is more to an estate plan than drafting up a will and locking it in a safe for the rest of your days.

1. Never Underestimate the Value of Estate Planning Strategies

Estate plans are not exclusively valid for the wealthy and/or elderly. Young parents starting a new family, couples with blended families, partners with a chronic illness or disability, and parents to special needs children should take care to learn more about how estate planning can be critical insurance for their loved one's future.

Simple estate planning documents can ensure that the most important people in our lives can get the help and support they need. Given that life can be ruthlessly unpredictable, most people's most significant estate planning mistake is waiting until it is too late.

Most families don't need a complicated estate plan to protect their assets from federal estate taxes or simplify a large estate – but they might need documents to ensure that their relatives can access significant funds or manage financial and healthcare decisions in the case of mental incapacity or grave illness.

2. Consider the Impact of Probate

The probate process is an essential legal process by which a court oversees your assets and property's lawful distribution and legitimizes your will (if one exists). Probate codes differ from state to state, and certain states have lengthier and more expensive probate proceedings.

You can expedite probate for smaller estates in California, for example, but must do so before the probate process officially begins (usually within the first month of a person's death). There is a string of requirements behind this process, such as getting a thorough estate valuation, but it can save you the time and costs usually associated with probate.

Alternatively, larger estates should investigate minimizing the assets that bypass probate for cost-related or privacy reasons, usually through trusts and other vehicles.

3. Learn About Specialized Trusts

Trusts are effective vehicles for holding and distributing assets after death, but they come with a wide variety of individualized purposes. Trusts can be written to prioritize:

• • • Keeping investments safe from creditors.
    • Stretching holdings over a long period to support a special needs relative.
    • Minimizing or eliminating estate taxes by taking advantage of a spouse's remaining lifetime exemption limit, such as a bypass trust.

Various estates can use trusts in many ways, but the more extensive a trust becomes and the longer a trust must be managed, the more expensive it becomes. Discuss your options and potential ideas with a professional.

4. Reconsider How Your IRA Distributions

Typically, retirement accounts are configured to distribute individuals' remainders to children and grandchildren over decades. However, these so-called stretch IRAs are no longer viable in their current form, as the SECURE Act now limits the length of time relatives have to distribute IRA contents post-death.

When setting up an IRA and deciding how you want to distribute its remainder among your relatives, consider picking spouses or siblings who are less than ten years younger, as they can still benefit from distributions throughout their life expectancy. Individuals with disabilities are also exempt from the new 10-year rule.

5. Don't Wait Too Long to Gift Your Wealth

While the Tax Cuts and Jobs Act of 2017 doubled the federal estate tax (and lifetime gift tax) exemption limit all the way through to 2025, political pressure from the new administration and a Democrat majority in the house may mean that the current estate tax exemptions may face the chopping block at some point before 2025.

The new administration has previously mentioned a return to pre-Trump estate tax exemption limits during its campaign trail, which would mean that many taxpayers might have to consider a rewrite of their estate plans soon to avoid a massive tax hit after death, should a new tax bill come to pass. Another consideration is to take advantage of the IRS's promise to avoid clawing back on gifts made within the lifetime gift tax exemption limit (which is shared with the estate tax exemption limit) should a change occur.

If estate tax exemptions are drastically reduced, people with more extensive portfolios should consider distributing their wealth now rather than later and take advantage of the more significant lifetime gift tax exemption limits currently available. This means ramping up gifting efforts to reduce your estate's size and make use of the lifetime gift tax exemption limit. There are also trust options to avoid losing out on a considerable portion of your estate.

6. Cover Tuition and Medical Expenses Now, Not Later

Most gifts are taxed, which is why parents and grandparents are encouraged to consider estate planning strategies to distribute their wealth after death. However, there are exceptions to the annual gift tax. Tuition fees from preschool through to graduate school and medical bills count as tax-free gifts. This way, you can further reduce your estate after taking advantage of the lifetime exemption limit while making a friend or relative happy or keeping them out of debt.

7. Always Seek Professional Help for Estate Planning Strategies

DIY tools and programs are a dime a dozen online, yet rarely do the complexity and variety of estate planning any justice. There are countless state-specific rules and considerations, as well as ways to amend and change common language in a will, trust, or other estate planning document to better fit your circumstances.

Furthermore, even simple clerical errors can lead to massive headaches and wreak financial havoc down the line. By spending upfront for professional help developing estate planning strategies, you save yourself and your family potentially tens of thousands of dollars in the future.