Certified Safe Money Admin


Certified Safe Money Admin


Estate Planning – Estate Planning Basics

Over time, many people become adept at saving and investing. On a regular basis, money and other assets may be stashed away “for the future.” But are these assets truly protected in the event of the unexpected?

While you might already have a will in place that names “who is to receive what,” the reality is that if you only have a will, your assets could still be subject to taxation. They may also be forced to face the costly and time-consuming process of probate. 

Therefore, having a good solid estate plan in place can help you protect assets from taxes and creditors. In addition, this type of plan can provide you with much more control over who receives what (and who doesn’t!)

What Estate Planning Is and Isn’t

Contrary to popular belief, estate planning is not just for the ultra-wealthy. Top planning firms agree many people can benefit from having an estate plan, as it can provide a great deal of control – both during and after your life. 

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Your taxable estate is defined as “the portion of your net worth that is taxable upon your death.” This refers to the total value of your assets that are subject to taxation when you pass away, minus liabilities and also minus the tax-deductible portion of your estate. 

Typically, a taxable estate will encompass some or all of the following assets:

  • Cash
  • CD’s
  • Stocks, bonds, and mutual funds (including retirement accounts such as IRAs and 401k’s)
  • Real estate
  • Personal property
  • Life insurance
  • Business(es) owned
  • Autos and other vehicles
  • Jewelry
  • Art and other collectibles 

There will also usually be at least some amount of liabilities present. These may include a(n):

  • Mortgage balance
  • Home equity loan balance
  • Auto loan(s)
  • Student loan(s)
  • Other loan(s)
  • Credit card balance(s)

After death, your assets and property may be subject to estate taxes based on the estate’s total value. This is determined by adding up the total amount of the estate’s assets and then subtracting the total amount of the estate’s liabilities. 

The following items are also allowed to be deducted to determine the taxable portion of an estate:

  • Funeral expenses that are paid out of the estate
  • Debts that the decedent owes at the time of his or her death
  • Value of the assets that are passed on to the decedent’s spouse

The federal estate tax is levied on the assets and property of those who die with estates that exceed a certain dollar amount unless the decedent is married and his or her assets pass directly to their spouse under a provision that is known as the “unlimited marital deduction.” (At the passing of the surviving spouse, though, the assets could then be subject to estate taxation). 

Historical Estate Tax Exemption Amounts and Top Tax Rates (Per Person)

Year Estate Tax Exemption Top Federal Estate Tax Rate
1997 $600,000 55%
1998 $625,000 55%
1999 $650,000 55%
2000 $675,000 55%
2001 $675,000 55%
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $5,000,000 or $0 35% or 0%
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%
2015 $5,430,000 40%
2016 $5,450,000 40%
2017 $5,490,000 40%
2018 $11,180,000 40%
2019 $11,400,000 40%
2020 $11,580,000 40%
2025 – ? ?

For many years, the federal estate tax exemption stood at $600,000. But over the past couple of decades, this amount has increased, allowing more people to avoid this type of tax on a deceased loved one’s assets. That, however, is likely to change in the future as many financial experts believe that taxes will be raised in the year 2025 when the provisions of the Tax Cuts and Jobs Act expire (or “sunset”).

In some cases, the federal estate tax is just the tip of the iceberg in terms of the death taxes that an individual’s survivors may incur.  For instance, as of January 1, 2020, the District of Columbia and the following states had estate or inheritance taxes:

  • Connecticut
  • Hawaii
  • Illinois
  • Iowa
  • Kentucky
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • Nebraska
  • New Jersey
  • New York
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Vermont
  • Washington


These states have differing exclusion amounts, too, that can range anywhere from $1 million to $5.74 million. 

Asset-Protection Strategies that are Used in Estate Planning

One of the key components of estate planning involves the use of trusts. These vehicles can protect the financial interests of your loved ones. They can also allow you to be more selective with regard to the distribution of your assets after you have passed away. 

Trusts are typically composed of four key components. These include the following:

  • Grantor – The grantor is the individual who sets up the trust.
  • Trustee and Successor Trustee – This is the person(s) or the entity that will follow your wishes as per the trust document, and that will manage the trust following your passing.
  • Beneficiary (or Beneficiaries) – These are the individuals or entities that will benefit from the trust’s assets. 
  • Property / Assets – There is also property or assets that are placed inside of the trust. These properties or assets are the items such as money and investments or physical property like real estate that will actually make up the trust.

In many cases, life insurance may be used as a funding mechanism for the payment of estate taxes – but the full benefit of this strategy can only be gained if the plan is appropriately set up. For instance, an irrevocable life insurance trust, or ILIT, can be created to either purchase a new policy or hold and own an existing one. 

By removing the life insurance proceeds from the insured’s name, the amount of the death benefit will not be included in his or her taxable estate, which reduces the amount of taxes that are due. 

Because the death benefit of the life insurance policy will pass directly to trust beneficiaries outside of the deceased person’s taxable estate, the money can essentially replace the wealth that would otherwise have been lost to the taxes on the estate.

Like any other type of financial planning strategy, there is no particular type of trust right for everyone across the board. In addition, estate planning can be somewhat complex, so it is recommended that you find a financial professional before you move forward with any type of plan.

In addition to a financial or insurance advisor, the ideal estate planning team should include a(n):

  • Attorney
  • CPA / Accountant 
  • Trust Company 

Depending on your objectives – as well as the type of assets that you own – there may be other professionals that are needed on your estate planning team, too. For instance, if you own collectibles, such as art, an expert in this area can be beneficial. Likewise, if you own a great deal of real estate, having a real estate specialist on board is recommended.

In addition to the professionals on your estate planning team, it is also beneficial to involve family members in the process. That way, there will be no surprises for your survivors down the road. 

Once your estate plan has been created, it is not a “set it and forget it” situation. Rather, your plan should ideally be reviewed at least once each year – and even more often if you have had any type of life-changing event take place, such as marriage or divorce, the death of a spouse or partner, birth or adoption of a child or grandchild, purchase or sale of a home or business, and/or retirement. 

Conducting a regular review of your estate plan can help to ensure that no one is unintentionally disinherited. It can also prevent unintended beneficiaries (such as an ex-spouse or partner) from inheriting assets.

Taking the First Step to Get Your Financial Affairs in Order

In order to prepare for the creation of your estate plan, a good first step is to take inventory of your assets, as well as their estimated value. Then go through and determine your total liabilities. 

These may include loan balances on a home or on your vehicles, credit card balances, or personal loans. Next, subtract the amount of these liabilities from the total amount of assets that you own. This will give you an approximate net worth figure. 

It is also recommended that you consider where you would like to have your assets transferred upon your passing. Then, a wealth planner can help you reduce – or possibly even eliminate – the taxes that may be due at that time. 

If you have any additional questions regarding whether or not an estate plan would be in your (and your loved ones’) best interest, feel free to reach out to us directly and schedule a time to chat with an estate planning specialist.

Find the most credible, highest-rated Safe Money advisors in your area.

If you are nearing retirement or already retired, you should consider safe money because your future is too bright to risk.

Are you a safe money expert?

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