Despite some common misconceptions, estate planning is for everyone, no matter their net worth. However, if you’ve accrued a significant amount of wealth and assets, you should develop a comprehensive and thoughtful estate plan. The more complex someone’s financial situation becomes, the more critical a solid estate plan becomes. Not to mention, an estate plan isn’t just for helping your family after your passing—it can also determine the type of care you receive in a medical emergency.
While we recommend working with trusted estate planning professionals to develop a legally binding estate plan, here are a few important considerations to remember.
Understanding Estate Taxes
In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the federal estate tax exemption limit, which has received inflation-related adjustments since being passed. If your total estate, including your lifetime gifting, falls under the exemption limit, the IRS will not collect estate taxes during transfer. If your estate exceeds the exemption limit, any portion above the limit may be subject to estate tax, which can go as high as 40%.
Remember, if your estate is being transferred to a surviving spouse, the estate tax is typically not applicable.
In 2024, the federal estate tax exemption limit is $13,610,000 per individual taxpayer (or $27,220,000 for married couples).1 It’s worth noting, however, that the TCJA is set to “sunset” in 2026. Unless further action is taken, the individual taxpayer limit will be cut in half, to around $7,000,000.
State Estate and Inheritance Taxes
In addition to federal estate taxes, some states impose either a state estate tax, inheritance tax, or both—though most states with these taxes also offer exemption limits. Oregon has the lowest exemption limit of $1,000,000, and Connecticut has the highest exemption limit at $13,610,000 (which is the same as the federal limit).2 If your state is not on the list below, then it does not have an estate of inheritance tax, for now.
States with estate or inheritance tax currently include:2
- Connecticut
- Hawaii
- Illinois
- Iowa
- Kentucky
- Maine
- Maryland
- Massachusetts
- Minnesota
- Nebraska
- New Jersey
- New York
- Oregon
- Pennsylvania
- Rhode Island
- Vermont
- Washington
- Washington, D.C.
Probate: Costs and Concerns
A probate court oversees the execution of your will and estate, if needed. Its primary role is to ensure your final wishes are executed as intended and outlined in your will. If you don’t have a will, the court will also be responsible for determining who receives what assets (typically based on the status of your relatives).
Generally speaking, probate can be a process that’s:
- Long and drawn out
- Time-consuming
- Expensive
- Very public
It can cost around 5% to 10% of your estate’s value and last up to several years.3
Many high-net-worth families will work with their financial advisor and estate attorney to find opportunities to bypass the probate process and transfer assets faster, more effectively, and privately to their loved ones.
Common methods that estate attorney’s recommended, include:
- Establishing a trust and naming your heirs as the beneficiaries
- Adding beneficiary designations on insurance policies and accounts
- Opting for joint ownership of certain assets or accounts
Avoiding probate can be especially helpful for high-net-worth families with most of their assets tied into illiquid assets. After you or a loved one passes, the probate process may make it difficult for the surviving family members to access funds quickly and address immediate financial obligations (funeral costs, final expenses, court or legal fees, etc.). At Paradigm, we purposefully have discussions making sure cash is available outside of investment accounts to handle immediate financial obligations.
Regularly Review Your Estate Plan
Think about how much you’ve changed through every stage of life you’ve experienced. Just as you evolve, so does your financial landscape. Yet, many people forget to revisit their estate plans and update them.
For example, whoever is listed on your 401(k), IRA, annuity, or other account as a designated beneficiary will receive those funds after your passing—superseding your will. Beneficiary designations override what’s written in a will, meaning you must update the information in both places to ensure continuity across your estate plan.
As your family grows or your estate acquires new assets, you’ll want to revisit your plan regularly with your attorney (ideally once a year) and make adjustments as needed. At Paradigm, we’ll continue to discuss your investment accounts and how they are structured into your overall estate plan.
Build Your Team of Professionals
For high-net-worth individuals and families, it’s especially important to work with a team of professionals who are familiar with the estate planning process. This may include an estate attorney, tax professional, and Paradigm. Together, they can help you navigate evolving estate laws and pursue opportunities to minimize your tax liabilities.
If you’re interested in revisiting your estate plan, or you’d like to learn more about helping your family avoid probate, don’t hesitate to reach out to our team today.
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