Last week, I discussed the six steps to follow when constructing a retirement plan for your clients. Here are other important aspects to consider.
Minimize or eliminate probate. Probate is the court process whereby your clients’ assets go through the system to demonstrate the authenticity of their legal documents in order to decide who gets what assets. When your client’s estate is set up properly, probate is minimal or unnecessary. They can set up a trust and ensure their non-retirement assets are titled into that trust. Their gross estate could be depleted up to 6 percent for probate cost when planning is not done.
Minimize or eliminate death tax. If your client passes away in 2012 and has a financial worth of $5,120,000 there is no death tax. However, beginning Jan. 1, 2013, the federal estate exclusion will return to the 2002 level, which is $1 million. So in 2013 if your client couple has done no planning and their net worth is $1.5 million and they have kids, the first $1 million will be sheltered by the death tax deduction, while the $500,000 could result in a 43 percent loss (tax) to their kids. With some estate planning, utilizing a credit shelter trust, every dollar over $1 million and up to $2 million can be sheltered from the death tax. And while the unlimited marital deduction will ensure that a spouse can leave as much money as they want to a surviving spouse the death of that surviving spouse means their heirs can lose up to 43 percent of their inheritance.
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Ensure your clients’ inheritance gets to the right people. For example, a qualified terminal interest property trust (QTIP) can ensure client couples can leave a certain amount of money to one person’s child. It allows for a surviving spouse to use the income from the asset without touching the principal and that when the surviving spouse passes the principal goes to the other person’s child.
So what are some of the red flags you can look for when helping clients construct their financial plan?
Is everything titled correctly so they can avoid probate?
- Home, out of state property
- Retirement accounts
- Stock certificates
Beneficiary wording current and names the person they want to get the assets/proceeds.
They started at a company 30 years ago, named their wife and kids. They have been divorced and remarried 20 years and never made a change to the beneficiary wording.