Every family has a different set of goals when it comes to estate planning. For some, making an estate plan is simply a necessary part of organizing their affairs and it is unnecessary to get too in-depth with complex plans or methods to minimize tax. For others, the goal of estate planning might be to help set up the next generation or grandchildren to aid with a specific cost, such as buying a first home or paying for college.
In those cases, it is helpful to look not just at how the assets are transferred and to whom, but also what is done with the assets before the transfer to try to boost and maintain their value.
For example, in the case of a retirement account or another type of savings account that is to be passed along to children, find out if there is a way to use a portion of the funds without significant penalty to purchase a life insurance policy. Life insurance policies are easily transferred through life insurance trust accounts and can potentially pass without any estate tax in some states. As a result, these policies can be a helpful way to maximize the value of assets through a well-planned investment. When one creates a trust they also have the opportunity to put provisions into the trust documents to guide how the money is used and by whom, so it can also be a helpful way to ensure that funds are designated for college education, debt relief, a new home, or charitable causes.
Source: Wall Street Journal, “A Plan to Boost the Kids’ Inheritance,” Austin Kilham, Oct. 30, 2013.