A foundational estate plan is critical not only to facilitate an orderly and tax-efficient wealth transfer but also to plan for the unexpected. Your foundational plan should include both wealth transfer planning upon your passing and incapacity planning.
We are currently in the midst of the largest intergenerational wealth transfer in the nation’s history, and the pace of that transfer is likely to accelerate in the coming years. The wealth of the baby boomer generation is estimated to be as high as $90 trillion, or half the entire wealth of the United States.1 This Great Wealth Transfer, as it has come to be known, will occur with the same certainty as the deaths that inevitably cause it. What is less clear is the way that wealth will be transferred. Nearly half of wealthy families in this country do not have an estate plan in place.2 A broader survey puts that percentage as high as two-thirds for families across the wealth spectrum.
Your estate plan should be designed to transfer assets to your beneficiaries in the most orderly, economical, and tax-efficient way possible, while minimizing the potential for conflict, avoiding probate where appropriate, maintaining privacy, and, perhaps most importantly, ensuring that your wishes and intent are faithfully executed.
Wealth transfer planning
A will or revocable trust will help you direct what happens to your wealth upon your passing. Either tool may be used to name beneficiaries to inherit your estate. The difference between the two is the process or how the assets are administered.
- A will is subject to probate, a court-driven process that is often time-consuming, costly, and public. Once the will is admitted into the court system, it generally becomes a public record allowing anyone to research your beneficiaries and what they are receiving from you. Essentially, probate is the process of asking a judge permission to administer your estate as your will directs. Probate also includes a public invitation, usually published in a local newspaper or online, for anyone to come forward and contest your will or claim that you owed them money. Probate will be required not only in the state in which you reside but also in any other state where you own property.
- A revocable living trust avoids probate by creating and titling your assets into a revocable trust while you are still alive. Additionally, if you own properties in multiple states, a revocable trust avoids probate in those states as well. Revocable trusts avoid probate because they do not die. Remember that probate is the process by which assets are transferred and retitled after the decedent/owner’s death. If your assets are held in a revocable trust, they remain there after your death, and the terms of the trust determine what happens after your death. Generally, assets will continue to be managed in trust for the benefit of your surviving spouse, children, family members, distributed to charity, or some combination thereof. You dictate the terms of the trust when it is created.
Transfers within a revocable trust can be accomplished faster than transfers under a will since probate is not required. And because probate is not involved, the costs of administering a revocable trust are generally much lower, and administration remains completely private. Additional benefits of revocable trusts allow you to:
- Plan for your incapacity. In addition to planning for your passing, a trust may also be helpful during your incapacity. You may name a successor trustee to manage your trust assets during your incapacity.
- Retain control. Although the assets will be owned by your trust, you may continue to use and benefit from these assets as you currently do. The taxation of the assets does not change; they will continue to be reported under your Social Security number.
Incapacity planning documents
These documents direct who may step in to assist you in the event you are incapacitated and cannot handle your financial matters or make your own medical decisions.
- Financial power of attorney. Your financial power of attorney allows you to designate an individual to handle your financial affairs on your behalf. It is designed to help avoid the need for a guardianship or conservatorship proceeding in the event you become incapacitated. This document should explicitly indicate the powers you are granting to your agent to ensure they may handle all your affairs while you cannot. These powers may include paying your bills and filing your income tax returns, among other powers.
- Healthcare power of attorney. Also known as a medical power of attorney or healthcare proxy, a healthcare power of attorney allows you to designate an individual to make your medical decisions on your behalf when you cannot convey your wishes to medical providers.
- Living will. This document allows you to indicate your end-of-life decisions and may alleviate the pressure of having your loved ones make these decisions for you.
- HIPAA Authorization. This document allows you to name individuals to have access to your protected health information. It should be valid until well after your passing to allow your loved ones an opportunity to access vital health information.
Fiduciary selection
When selecting trustees and agents to serve on your behalf, you must name individuals who are trustworthy, responsible, and level-headed. It is recommended that you name one individual to serve at a time to help avoid unnecessary conflict among your fiduciaries and avoid undue delay in handling your affairs.
1 Green Carmichael, Sarah. “The ‘Great Wealth Transfer’ Is a Delusion.” Bloomberg, 5 April 2024.
2 Benjamin, Maya. “US families are ‘woefully unprepared’ for the great wealth transfer.” Yahoo! Finance, 11 August 2024.
3 Konish, Lorie. “67% of Americans have no estate plan, survey finds. Here’s how to get started on one.” CNBC, 11 April 2022.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
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