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The Financial Benefits of Estate Planning

The Financial Benefits of Estate Planning

September 25, 2023

Estate planning can be a challenging topic to broach because nobody wants to think about their finite time here on this earth. However, planning early is a financially savvy move, especially if you have a sizable estate. It means that you can take tax breaks here and now, prepare your estate for your family members, and position them for financial success after you pass. 

The benefits of estate planning are many, and it pays to start thinking about them right away. In particular, trusts play a crucial role in estate planning and can offer strategic advantages as part of your plan.

These four key components of a solid estate plan will have you thinking about how to prepare a large estate for your beneficiaries.

1. Protect Your Assets

Individuals with a high net worth may worry that their assets can be seized after their passing, creating a smaller inheritance for the loved ones left behind. Estate planning allows you to protect your assets and shield them from creditors who may pop up. If you have a number of assets that you would like to protect, start thinking about estate planning early. 

An irrevocable trust is the best way to protect your assets because it permanently removes these assets from your estate. Creditors who come to collect a personal debt or lawsuits issued against you will not be able to access the assets. Only those you name as beneficiaries will reap the benefits of those items. 

While some people do this temporarily if they are at high risk of lawsuits or the demands of creditors, it can still be beneficial to permanently set assets aside for a beneficiary in an irrevocable trust. This protects them from any debts or lawsuit settlements that may otherwise shake the firm financial footing of your estate plan.

2. Reduce Your Tax Liability

Another financial benefit of estate planning is the ability to reduce tax liability. When you take the time now to shift assets around, you remove them from your overall net worth. You can get creative by shifting assets to a charitable remainder trust, which benefits your beneficiaries as well as the charity of your choosing. 

This is also key for your estate taxes if what you leave behind will be significant. Property placed in a charitable remainder trust is not considered part of the taxable estate, which can save your loved ones from having to pay taxes on these items. Instead, they will receive distributions which will most often be taxed as long term capital gain.

Beneficiaries receive a payout for a set period of time or for the remainder of their lifetime. The remaining balance (which should equal 10 percent of the trust or more) will be given to the selected charity. You get the tax deduction here and now while setting up a legacy for generations to come. 

3. Avoid Probate

Probate court can be a long, time-consuming, and financially-draining experience for your loved ones after your passing. Certain accounts will trigger the need for probate such as individual bank accounts, investment accounts, and personal possessions. The good news is that you can enable your loved ones to avoid the drama of probate court by placing your wealth in a trust for them. 

If you want your loved ones to receive their payout as quickly as possible after your passing, it is in everyone’s best interest to avoid probate, which could take up to half a year to settle even if no one in your life objects to the will. 

In other situations, family may fight over your estate if they feel that they were entitled to more than you wanted them to have. A trust makes it crystal clear what your last wishes were and allows you to avoid a contested will situation when your beneficiaries may need the money to care for a sick relative or to pay their living expenses. 

4. Provide Stability for Dependents 

Maybe you were financially responsible for your dependents and want to ensure that they are well taken care of after you are no longer around to see to their needs.

A charitable remainder trust as part of your estate planning can give loved ones peace of mind and a sense of financial stability. They can receive regular payouts from the irrevocable trust for a set period until they get their financial footing or for the remainder of their lifetime. 

There is an additional benefit to estate planning that many people must consider. Not everyone who receives their inheritance is going to spend it wisely. When given a huge lump sum of cash, it is possible that someone will spend it irresponsibly. 

By dictating the conditions of the provision of funds to your loved ones with a charitable remainder trust or other irrevocable trust, you can prevent them from spending away the legacy you’ve left them in one fell swoop. 

Set Up Your Estate With Confidence

Even if you have many long, happy years left in your life, the benefits of estate planning can be financially beneficial in the here and now when it comes to tax liability for you and your dependents. 

Magellan Planning Group understands how stressful it can be to think about what happens after you are no longer here to see to the financial needs of your loved ones. We can help you with your estate planning, especially if you think that a charitable remainder trust could be the right fit for your estate. Our simple strategy helps you plan for the future, mitigate taxes now and later, and generate a long-term financial legacy for your beneficiaries and causes you care about.

Contact us today to learn more about how we can help you establish your estate planning now.