THE IMPORTANCE OF ESTATE PLANNING

^{By Louis Green, CFA®, CFP®, CRPS®}

The Importance of Estate Planning

Estate planning should be part of your retirement plan. A proper estate plan will help to make sure your assets are distributed based upon your wishes after your death. If you have a large estate, estate planning might also help you minimize estate taxes. Finally, estate planning can help you avoid probate, which is the process of reviewing and distributing your assets.

 Estate Planning Fundamentals

Wills 

A will is a legal document that outlines how you want your assets distributed after your death. You should have at least a basic will in place. However, your will does not dictate the distribution of assets titled with rights of survivorship, retirement accounts, life insurance, or transfer-on-death accounts. Those assets are distributed to the beneficiaries listed directly on the account. Be mindful of which assets pass outright to beneficiaries, and make sure those beneficiaries are reviewed at least annually.

Revocable Trusts

A revocable trust can serve several different roles in estate planning. A revocable trust will allow you to manage your assets while alive, and then designate who will receive your assets after you die. A revocable trust also provides you with some privacy because the assets in the trust do not have to go through public probate proceedings. Make sure to move all your assets to the revocable trust and consider creating a pour-over will to capture any assets that may have been inadvertently left out of the trust.

Irrevocable Trusts

An irrevocable trust can play an important role in estate planning, especially if your estate is large. Unlike a revocable trust, an irrevocable trust is difficult to modify. If you create an irrevocable trust, you are giving up ownership of the assets moved to the trust. Those assets are then managed by a trustee. An important benefit of some irrevocable trusts is asset protection from creditors and lawsuits. Additionally, you can leverage the gift and estate tax exemption by moving personal assets to a trust. Consider consulting with an estate and/or tax attorney for more information about asset protection and how to use an irrevocable trust to maximize the gift and estate tax exemption.

Power of Attorney and Health Care Directives

You should also consider having a power of attorney, health care proxy, and a living will. A power of attorney allows you to designate someone to handle your financial decisions if you are not able to do so. The person you designate can perform tasks on your behalf, such as paying bills or selling property. A health care proxy is another important document to have. A health care proxy allows you to designate someone to make healthcare decisions on your behalf in the event you are not capable of doing so. Additionally, you can create a living will, which outlines your wishes regarding medical care. For example, you can specify whether you wish to withhold life saving treatments or dictate the use of pain medication.

Gift and Estate Tax

The estate tax is a concern for most individuals with large estates, with federal estate tax rates currently reaching as high as 40%. There is a lifetime gift and estate tax exemption, which is the maximum amount you can give away during your lifetime or at death without incurring an estate tax. While the current federal estate tax exemption is relatively high ($13.99 million per person for 2025), it is scheduled to revert to a much lower amount at the end of 2025. If you have a large estate, you may want to consider ways to reduce its size. There are several methods to reduce your estate size. Some of these methods include leveraging the lifetime gift and estate tax exemption, using the annual gift tax exclusion, and making direct payments to medical and educational providers on behalf of a loved one.¹ 

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All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).

^{1 https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting}