If you have not started working on a will, trust, or estate plan, you're not alone. A recent survey revealed that 66 percent of American adults don't have an estate plan. Of the 34 percent who do have a plan, one in five have not updated it in the last five years.¹   We know estate planning can be intimidating, so we're sharing some basic approaches here.

Estate planning is a strategic financial process crafted to manage and safeguard assets effectively during one's lifetime while also ensuring their orderly distribution in accordance with predetermined objectives after passing. Your estate planning details will be contingent upon various individual factors, including age, health, financial standing, lifestyle, life stage, and overarching aspirations. For instance, individuals with modest estates may prioritize specific bequests. Those with substantial estates may prioritize tax mitigation and require advanced strategies such as trust structures to achieve their goals effectively. No matter where your needs fall, it's important to tailor an estate plan to align with individual circumstances and objectives. Use the discussion points in this article to help you prepare for a visit to a financial planning professional who can advise upon a plan to meet your needs at every stage of life.

Estate Plans for Adults over 18

While death seems a long way off, the fact is that incapacity can strike at any age. Once you reach the age of 18, it's time to consider implementing two key documents:

• A Durable Power of Attorney: This legal instrument empowers you to designate a trusted individual to manage your assets should you become incapacitated and unable to do so yourself.

• An Advance Medical Directive: This document encompasses three primary types: (1) a living will, (2) a durable power of attorney for healthcare (also referred to as a healthcare proxy), and (3) a Do Not Resuscitate (DNR) order. It's important to note that the availability of these directives varies by state, necessitating careful selection to ensure effectiveness in your jurisdiction.

Taking proactive steps to establish these documents can provide essential safeguards and ensure that your wishes are respected in the event of unforeseen medical circumstances.

Estate Plans for Young, Single Adults

Even if you're young and unmarried, it's essential to cover the basics of estate planning. Draft a will to ensure your assets are distributed according to your wishes rather than defaulting to legal heirs, typically parents. Directing your possessions to loved ones or charities of choice can be specified in your will. Not only will you ensure your assets are distributed according to your wishes, but you'll also relieve your family from the burden of making such decisions should you pass.

Estate Plans for Unmarried Couples

If you've committed to a life partner but aren't legally married, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that legal relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.

Estate Planning for Married Couples

For many years, married couples had to do careful estate planning, such as creating a credit shelter trust, to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse's estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning.

You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die's estate tax exclusion, and a credit shelter trust created at the first spouse's death may still be advantageous for several reasons:

• Portability may be lost if the surviving spouse remarries and is later widowed again
• The trust can protect any appreciation of assets from estate tax at the second spouse's death
• The trust can protect assets from the reach of the surviving spouse's creditors
• Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to leverage the GST exemptions of both spouses fully

Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse, but a $185,000 annual exclusion for 2024 ($175,000 for 2023) is permitted. However, if certain requirements are met, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.

Estate Planning for Married Couples with Children

If you're married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death, some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them.

You may also want to consult an attorney about establishing a trust to manage your children's assets in the event that both you and your spouse die at the same time.

You may also need life insurance. Your surviving spouse may be unable to support the family on their own and may need to replace your earnings to maintain the family.

Estate Planning if You're Looking Forward to Retirement

If you're in your 30s, you may be feeling comfortable. You've accumulated some wealth, and you're thinking about retirement. Here's where estate planning overlaps with retirement planning. It's just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should remember that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).

Estate Planning for Wealthy Individuals

Depending on the size of your estate, you may need to be concerned about estate taxes.

For 2024, $13,610,000 ($12,920,000 for 2023) is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent.

Similarly, another tax, the generation-skipping transfer (GST), is imposed on transfers of wealth made to grandchildren (and lower generations). For 2024, the GST tax exemption is also $13,610,000 ($12,920,000 for 2023), and the top tax rate is 40 percent.

Note: The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half.

Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.

Estate Planning for the Elderly or Ill

If you're elderly or ill, you'll want to write a will or update your existing one, consider a revocable living trust, and ensure you have a durable power of attorney and a healthcare directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.

Mirus Financial Partners Can Help

No matter your life stage, Mirus Financial Partners can help you think through your estate planning options. Contact us today to get started.

¹ D.A. Davidson Survey, 2022 https://bit.ly/48gLGti