With the holiday season upon us, it is sometimes difficult to figure out what to give your family for Christmas. Spending a little time to get all your affairs in order is one of the best gifts you can give your family. Don’t let procrastination be a nemesis. If you haven’t already created an estate plan, consider starting now. If you have an estate plan, but it’s been a while since you last looked at it, remember that a lot can change over the years. Your life circumstances may have changed, heirs may have died or remarried, the person you chose as executor of your estate may no longer be capable, and the recent Tax Cuts and Jobs Act (TCJA) of 2017 could make your current plan obsolete.

Put aside a few hours and start working through the process to determine what’s most important to you as you make your estate plan. Exactly what you need in your estate plan depends on your assets and your family situation. Business owners will need a succession plan, and parents of children with special needs may need to set up a Special Needs Trust.

5 things to do that will make your heirs say thank you

#1: Take an inventory of everything you own, no matter how small

Consider creating a detailed personal financial statement of your assets and liabilities (your personal Balance Sheet). An excel spreadsheet is an excellent tool to create this balance sheet. Be sure to include account numbers, how assets are titled, beneficiary and payable on death designations. Some of these items will include:

  • Bank accounts
  • Investment accounts
  • Retirement accounts
  • Annuities
  • Life insurance policies
  • Real estate (e.g., main residence, vacation homes and rental properties)
  • Businesses you own
  • Other personal property (e.g., art, furniture, vehicles and collectibles)

Use actual account balances and an estimate of values where necessary.

#2: Gift and estate tax exemptions are only temporary, use them while you can. 

TCJA increased the exemption amount for gift and estate transfer taxes to $11.4 million (per individual) from a previous $5 million. Yet, the increased exemption only lasts on transfers made on or before December 31, 2025. What that means is that you can transfer up to $11.4 million in assets as a gift, or through your estate, without incurring any tax liability at all. If you are transferring assets as a married couple, the exemption is doubled to $22.8 million. Therefore, unless the law is changed again, the TCJA exemption amount will decrease. This means that you have a temporary opportunity to transfer significant wealth to future generations without paying federal estate or gift taxes.

It is important to keep in mind that despite the estate and gift tax issues (or lack thereof), it is still necessary to carefully plan your estate for income tax issues. Furthermore, at the end of the day, despite tax, the balance of this blog represents the most important issue, which is how you are going to leave your assets. The estate and gift tax issues simply represent how much one can leave without paying tax.

#3: Use a Revocable Living Trust 

Considered using a Revocable Living Trust to hold your assets. It allows you to pass on assets without going through the public probate process, and it allows someone else to manage your affairs if you become incapacitated. Probate is a court proceeding whereby the heirs prove the decedent’s will is valid and transfer the assets out of the name of the deceased to the heirs named in the will. Such a proceeding will take a minimum of six months or much longer in more complex estates.

A revocable trust takes the place of the will; it designates who is to receive the assets upon the decedent’s death, much like a will, but the assets pass from the trust to the heirs without the need for probate. It is often called a Will Substitute. The revocable trust will also avoid ancillary probate proceedings in other states where you own real estate. Without the revocable trust, your estate would have to go through probate not only in the state of your residence but in every other state where you own real estate.

#4: Make the Revocable Living TrustDynasty Trust  

Upon your death, the Revocable Living Trust becomes irrevocable. The trust can be structured as a Dynasty Trust. As you may know, transferring assets to a grandchild, thereby skipping a generation, are subject to gift and estate taxes. You can create a Generation-Skipping Transfer Trust to continue in perpetuity in some states or 360 years in Georgia and Tennessee. Dynasty trusts offer unique tax advantages that short-lived trusts cannot match. Assets in a dynasty trust legally belong to the trust, not the beneficiaries. Only one estate transfer ever occurs for tax purposes—the original transfer of property from you, the grantor, to the trust. Even if the trust benefits many future generations and grows in value far beyond the current estate tax exemption, it will never again be subject to estate transfer taxes.

#5: Asset protection with trusts 

Your estate plan should consider leaving a beneficiary’s inheritance in trust rather than outright. In the case of a young beneficiary, a trust would be used in order to provide management of the beneficiary’s assets by a Trustee who would be more suitable to perform that duty. In such a case, distributions would be made to the beneficiary in increments as resources are needed. In the case of an adult beneficiary who is suited to manage his or her own assets, a trust is useful to protect its inheritance from the beneficiary’s creditors or from a bad marriage, for example. Depending on the size of your estate, you may want an adult beneficiary’s inheritance to remain in trust indefinitely due to the asset protection features of a trust. During the term of the trust, the assets are not part of any beneficiary’s personal wealth or estate. Therefore, a dynasty trust, if done correctly, cannot be broken up in divorce proceedings. Nor can it be pursued by a beneficiary’s creditors, even if that beneficiary has racked up large debts.

Final thoughts

Families, especially those with children and grandchildren, can have a lot to lose if estate planning is not done properly. We never know when somebody may die unexpectedly, and in the case of an estate subject to federal estate tax, the more time one has to work on reducing the size of the taxable estate, the more success there will be in reducing the federal estate tax. Accordingly, you should take a moment to take stock of your assets and determine what estate planning strategies you can employ to make sure that your assets are handled in the way you want when the time comes.

contact an expert»

Phil Booth, CPA, is a Partner in Moore Colson’s Tax Practice. Phil’s primary responsibilities are tax planning, research and compliance for business owners and high-net-worth families through the use of sophisticated estate and gift transfer tax techniques.


AJC TWP 2022 Award Ribbon
AJC TWP 2022 Award Ribbon

AJC TWP 2022 Award Ribbon
AJC TWP 2022 Award Ribbon


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