How to Set Up an Estate Plan for Family and Loved Ones

By Robert (Buck) C. Klintworth, CMT
Senior Vice President

Many successful first-generation investors in and around Charlottesville, Virginia don’t know how to transfer wealth to their children, or even how to talk about it. In a busy world, it’s easy to put off estate planning with the promise to get to it later. It may seem like a daunting task, but by taking a few preliminary steps, you can be on your way to setting up an estate plan that makes sure that your wealth is distributed according to your wishes.

Will vs. Trust

Almost half of older Americans don’t have a will or estate plans. Dying intestate (without a valid will) means that your wishes for how your assets are distributed is out of your hands and in the hands of state law. But there are two main ways to ensure that your intentions for your wealth are carried out after death.

A will is a legal document that states how a person’s assets, belongings, and personal items are to be distributed after his/her demise. A will usually covers all the assets in the estate and only goes into effect upon death. It may be changed any time before death. One advantage to a will is that it can be completed with relatively little to no cost and considerably less direction from estate-planning experts. However, a will must pass through probate court, which is public and can be lengthy and costly depending on the size of the estate and the clarity of the will.

A trust, in simple terms, only contains those assets that are transferred into it. Typically, trust documents will contain the objective of the trust, assets covered, rights, limitations, and compensation of the trustee, and the proportion in which the asset is transferred to each beneficiary. A trust is a more involved plan than a will, with more costs up front, and depending upon the type of trust, it may or may not be able to be changed before death. One advantage to a trust is that it is exempt from the probate process, allowing the beneficiaries to receive their inheritance in less time while keeping the contents of the trust private.

Account Beneficiaries

You may think that explicit instructions in a will as to how your assets are to be divided should take care of everything, but that’s not necessarily the case. It certainly helps, but there are other items to consider when doing estate planning.  There are certain financial accounts where the named beneficiary supersedes instructions given in a will.

Payable on Death (POD) and A Transfer on Death (TOD) accounts transfers assets automatically to the beneficiary named on the account outside of probate and occurs regardless of instruction in a will or trust. Some common POD accounts are checking, savings, or money market accounts, along with CDs and U.S. saving bonds. Some examples of TOD accounts include retirement accounts, brokerage accounts, stocks, and bonds.

For any financial account, you should name contingent beneficiaries as well as primary beneficiaries. It’s also important to update your beneficiaries for life events (birth, death, divorce, etc.) and coordinate with your will or trust. At Chase Investment Counsel, we reach out to our clients to make sure that, in the event of life changes, their current investment strategy is still appropriate for them. We realize that it’s easy to overlook updating the information on your accounts, and we’re here to guide you through the process.

Taxes

No talk about estate planning and transferring wealth would be complete without addressing the issue of taxes. Some people want to begin addressing the issue of transferring wealth while they’re alive, while others are content for their wealth to be transferred after their death. Luckily, both ways provide opportunities for you to pass on wealth without paying taxes.

A gift tax is a tax on the transfer of money or property to another person while getting nothing (or less than full value) in return. In 2020, the annual exclusion per recipient is $15,000. What that means is that you can give up to $15,000 this year to as many people as you want without it being taxed. Next year, you can give the maximum amount (it changes based upon inflation) to the same people if you want, and there’s still no tax to be paid.

If you are married, and your spouse agrees to “split” a gift with you, you can give a gift of double the annual exclusion without triggering any tax consequences. However, you would need to file a form with the IRS. It’s the same form that you would fill out if you gifted more than the annual exclusion. If you do gift more than $15,000 to someone in 2020, that doesn’t necessarily trigger a gift tax, but the amount over that $15,000 would reduce the amount of your estate tax exemption.

The estate tax is a tax on an estate whole value exceeds an exclusion limit set by law. In 1997, the estate tax exemption was $600,000, with a top estate tax rate of 55%. In 2020, the estate tax exemption is $11.58 million, with a top estate tax rate of 40%. Because the estate tax exemption has risen so much over the last two decades, the vast majority of estates no longer pay federal estate taxes. However, under current law, in 2026, the estate tax exemption will revert back to the 2017 level of $5 million, as adjusted for inflation.

We have a number of clients who have taken advantage of the ability to gift assets tax-free while they are still alive. Whether it’s gifting cash or stock, we’re happy to help them in the process of transferring their wealth to the next generation.

Setting the Course

Every successful plan relies upon setting out clear goals, and estate planning and transferring wealth is no different. But by taking the first steps on that path, you can be on your way to making sure that the wealth you’ve earned is distributed the way you want. We are honored that our clients have entrusted us with the management of their wealth in order to see their financial vision come to fruition.

About Chase Investment Counsel

Chase Investment Counsel is a family and employee-owned boutique wealth management firm that offers personalized investment services. Our clients include career professionals, those nearing or in retirement, and families experiencing financial transitions such as generational wealth transfer, widowhood, divorce or sale of a business. Chase’s active, disciplined investment management team is focused on selecting individual stocks and bonds targeted to each investor’s specific financial goals and risk tolerance. Established in 1957 in Charlottesville, VA, Chase Investment Counsel manages approximately $300 million in assets.

About Robert (Buck) C. Klintworth, CMT

Buck Klintworth is Senior Vice President of Chase Investment Counsel and Portfolio Manager of the Chase Growth Fund. Buck received his BS in mathematics from Westmont College. He serves as a portfolio manager, technical analyst, and trader. Buck is a CMT® charterholder. He has been quoted in Barron’s. Prior to joining Chase in 2004, he had a career in accounting. Contact: 434-293-9104×105, or

[email protected]