4 Ways to Optimize Your Existing Estate Plan

October 26, 2023 Austin JarvisSusan Hirshman
Even after your estate plans are established, there's a lot you can do to help ensure your wealth will benefit your heirs to the fullest extent possible, including in the near term.

Putting together an estate plan is a major accomplishment, but the work doesn't stop there. Even after documents are executed, accounts are updated, and trusts are funded, there's still plenty you can do to maximize the impact of your plan. 

Here are four ways you can bolster your established plan to ensure it's optimally aligned with your family's ongoing needs. 

1. Open a dialogue about your plans

Money and death are two of the most difficult topics to discuss with family members, so it's best to start those conversations early—and to understand that it may take time to get everyone on the same page, especially in the case of a blended family or other unique family dynamics. But the effort is worth it. Families frequently put off such talks until it's too late, creating potential for conflict among surviving family members at an already difficult time. Tackling tough discussions now will help support family harmony later and protect your treasured legacy over time. 

Begin by sharing your values and goals for your family wealth. This can help your heirs see themselves as wealth stewards, rather than just beneficiaries of your legacy, and gain important perspective on the meaning of wealth and the responsibilities that come with it. It may also make the division of assets more palatable.

Long-term care is another subject that should be discussed sooner rather than later. And since caring for an aging or ailing loved one is often a family affair, it's critical to share your wishes in the event of your physical or cognitive decline. These conversations should address who will step in to help, should assistance be required. Some heirs may be better suited to act on your behalf financially, for example, while others may have the fortitude required to make tough medical decisions. Another important topic to cover is how such care will be funded and where the care will be delivered.

Once these matters are settled, make sure your healthcare proxies and powers of attorney are in place so your family members can easily step in to act on your wishes. 
 

2. Support your family members

Often, estate-planning conversations will reveal an opportunity to support your family members while you're still alive, perhaps by helping them fund a new business, purchase a home, or further their education. At the same time, strategically transferring wealth to heirs can help reduce the size of your estate, which in turn can reduce—or even eliminate—future estate taxes.

A tax-effective means of transferring wealth to heirs is via the annual gift tax exclusion, which permits you to give (in 2023) up to $17,000 per person ($34,000 if married filing jointly) to an unlimited number of people without eating into your lifetime gift and estate tax exemption (currently $12.92 million per person in 2023, but scheduled to drop to an estimated $7 million per person in 2026). 

Giving this way can be less complicated while still adding tremendous value over time. For example, consider a married couple with three adult children, each of whom is married with two kids—totaling 12 heirs. As a couple, they could gift $34,000 to each person—$408,000 in total—per year without eating into their lifetime exemption. Over just five years, they could transfer more than $2 million to heirs entirely tax-free. 

Keep in mind that annual exclusion gifting should be considered as part of your overall estate plan, as there may be other alternatives to consider. For example, it might make more sense to use your annual exclusion gift to pay life insurance premiums that are in an irrevocable life insurance trust or fund 529 plans. 

Other ways to support heirs and your estate plan include: 

  • Direct payments: Making payments directly to a medical or educational organization on behalf of others to cover educational or medical expenses doesn't count against your annual gift tax exclusion—and can help further reduce the size of your estate.
  • Intrafamily loan: An alternative to gifting is to lend money to a family member through an intrafamily loan. Intrafamily loans may be more attractive than other lending options because the borrower can get a lower interest rate than the typical market rate. While the lender will be taxed on the interest income they receive, and the promissory note may be included in the taxable estate for estate tax purposes, the borrower can use the proceeds to invest in an appreciating asset or business venture without owing any transfer tax on the return they earn above the intrafamily interest rate. 

3. Fulfill your charitable ambitions

Many estate plans include a desire to support charitable organizations and causes. If yours does, there are several ways to fulfill those ambitions during your lifetime while also reducing current and future taxes:

  • Qualified charitable distributions (QCDs): Once you reach age 73 (age 75 in 2033), you must take required minimum distributions (RMDs) from your tax-deferred retirement accounts. If some of your savings are in a traditional IRA, you can satisfy all or part of your annual RMD by giving up to $100,000 (indexed for inflation) per year to a qualified public charitable organization via a QCD. If you use a QCD to satisfy all or part of your annual RMD, it reduces your taxable income for the year and removes the funds from your estate. If you make a QCD after your RMD is satisfied, it will not be considered a distribution included in your taxable income. Keep in mind, you don't have to wait until you are required to take distributions from your IRA. You can start QCDs once you reach 70 1/2. Doing QCDs prior to your RMDs not only helps support your philanthropic interests, it may help to reduce your future RMDs and help with your overall tax bracket management. 
  • Establish a donor-advised fund account: If you have substantial appreciated assets— such as stocks, bonds, business interests, or even art and other collectibles—you can donate them to a donor-advised fund and receive a charitable deduction in the year of the donation. The charitable deduction varies based on type of property, the use of property, and election choices. The other advantage to a donor-advised fund is that you don't have to decide right away which organizations will benefit from your donations. Instead, you can take your time in determining which charities to support—perhaps with the help of your heirs, as a way of establishing a spirit of giving among future generations. You can even name successor account owners as part of your estate plan. 
     

4. Review beneficiaries and titling

It's essential to designate beneficiaries for retirement plans, life insurance policies, and annuities, as these instructions supersede your will and trust documents. However, life and legislation doesn't stand still. Both can have an effect on your beneficiary choices. Major events—such as a birth, marriage, divorce, or death in the family—can affect your list of heirs. Unfortunately, if you don't update your beneficiaries accordingly, you may end up leaving money to the wrong people. Furthermore, the Secure Act changed the distribution scheme for beneficiaries of inherited IRAs and what you intended to happen may not happen now.

Along the same lines, be sure that any real-estate property is titled correctly. Properly titling the property, such as ensuring the deed is owned jointly with your spouse or by placing it in a revocable trust, can help your heirs avoid probate.

It's also important to remember that life changes may impact those you've already identified to play a key role in your estate plans. The people you initially picked to be your executor, trustee(s), healthcare proxy, or custodian for your minor children, for instance, may be distracted or compromised by something going on in their lives. It's never a bad idea to check in with them on a consistent basis to make sure they're still comfortable fulfilling those roles.

Estate-planning and family dynamic professionals can be invaluable partners in this process—not only providing advice on tax matters and trust structures, but also helping with the sometimes-challenging human side of wealth transfer. Consider working with your financial or wealth consultant to explore different strategies to help achieve your family's specific goals.

Estate-planning and family dynamic professionals can be invaluable partners in this process—not only providing advice on tax matters and trust structures, but also helping with the sometimes-challenging human side of wealth transfer. Consider working with your financial or wealth consultant to explore different strategies to help achieve your family's specific goals.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Please be advised no advice, recommendations, or opinions, legal or otherwise, will be given regarding the enforceability or applicability of any document reviewed. Document reviews are for educational and informational purposes only. Any legal questions need to be directed toward your legal counsel.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, and/or attorney. The information provided here is for general purposes only and should not be considered an individualized investment strategy, recommendation, or personalized investment advice. Each investor needs to review their strategy in light of their own particular situation before making an investment decision. There are minimum requirements to work with a consultant and the Tax, Trust, and Estate Group. Wealth management refers to products and services available through the operating subsidiaries of The Charles Schwab Corporation, of which there are important differences including, but not limited to, the type of advice and assistance provided, fees charged, and the rights and obligations of the parties. It is important to understand the differences when determining which products and/or services to select.

Market fluctuations may cause the value of investment fund shares held in a donor-advised account to be worth more or less than the value of the original contribution to the funds.

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