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Estate Planning: Leaving the Right Legacy

young parents with baby and daughter greet their grandmother and talk with her about estate planning

While you can't predict the future, you could certainly help prepare for it and protect your loved ones. Considering estate planning while you're healthy and able to think clearly could give you the freedom to minimize (or possibly eliminate) the taxes associated with your death.

While most people understand the importance of estate planning, they often postpone it because thinking about death is difficult — and some might think it is just for the well-to-do. But you could help protect your loved ones with an estate plan that helps you leave behind the legacy you want.

Fulfilling Your Wishes

You might consider planning your estate if you want to leave money to the next generation or to a charity. A will — the basic component of an estate plan — is a legal document that is intended to communicate your final wishes. No matter your income bracket, a will could help offer clarity by defining your requests and offering instructions after your death.

Many estate planning techniques involving trusts and life insurance are available to help minimize estate taxes for wealthy individuals. If this applies to you, trusts could help ensure that your estate is distributed to the people or charities you want to help — and are subject to safeguards that you establish.

Your estate plan could help create and fund a trust upon your death, to be overseen by trustees you designate. In addition, you could designate that the funds in the trust be used for specific purposes, such as education. Trust funds offer flexibility and allow you to define requirements. You could indicate that if your adult daughter gets remarried and then dies, for example, the trust funds will then be distributed to your grandchildren instead of your daughter's surviving second husband.

Most married couples aren't concerned with federal estate taxes under the current law because couples can pass on all their wealth to a surviving beneficiary without estate tax consequences. When the surviving spouse dies — and if the couple has organized their estate plan appropriately — they could pass on close to $11 million without triggering a federal estate tax liability. Most states aren't as generous, however, so your estate is more likely to take a hit from your state if you don't plan ahead.

Start Gifting Now?

Estate planning helps give you options, and you don't have to die before you begin transferring wealth. Whether you have an estate plan or not, you could choose to gift $14,000 every year to as many people as you want without federal tax consequences to you, according to the Internal Revenue Service. And even if you aren't concerned about taxes, think about when your loved ones could make the best use of your gifts: Is it sooner or later? If your beneficiaries are a young family trying to establish a strong foundation, for example, you might consider transferring wealth sooner.

In addition, if your estate is large enough to incur a federal estate tax liability upon your death, considering a gifting strategy now might bring it down to a size that could put it below the estate tax threshold. This is important because the top marginal tax rate for the federal estate tax is 40 percent, which kicks in when the taxable portion of your estate exceeds $1 million. You could also give more than the $14,000-per-individual annual limit, but what you give over those limits begins to chip away at the maximum amount you could pass on through your estate tax-free.

Regardless of the size of your estate, you could also use life insurance to guarantee that designated loved ones (or other beneficiaries, including charities) will receive a particular amount of money upon your death that won't be subject to income taxes. You could simply take out a policy now — whether you pay for it with ongoing premiums or buy it with a single premium — and designate beneficiaries accordingly.

A donor-advised fund is another charitable gifting strategy. It allows you to make a tax-deductible gift today while waiting to disperse the money from the donor-advised fund to a charity at a later date. This gifting strategy is not applicable to gifts for individuals. This strategy could be helpful if you've pledged to support a charity at a fixed annual rate for several years, for example, but suddenly find you have a financial windfall. You could donate that windfall to your donor-advised fund today in order to help disburse the funds to your designated charity at the pace you had already pledged.

Remember, you could make changes to your estate plan as you move forward in life and your circumstances change. Estate planning requires careful thought about your philanthropic and gifting goals, but it could be well worth the effort.

Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation. 

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