Chris West, CPA, PFS
Estate planning is an essential aspect of any personal finance journey, involving the proactive determination of how your assets will be distributed and managed after your passing. It also provides an opportunity to specify the care arrangements for minor children. Whether you know it or not – everyone has an estate plan. It’s either self-prepared by you ahead of time or dictated by state laws if no plan is in place. Additionally, it’s vital to designate individuals to make financial and medical decisions on your behalf in the event you become incapacitated.
In introductory client meetings, I often draw a visual aid to provide a high-level illustration of the essence of estate planning. Envision with me, a circle at the top represents the client’s estate, with the overall value (net worth) noted inside. Three circles below represent heirs, charity, and the Internal Revenue Service (IRS), demonstrating that assets will go to these entities or a combination upon passing. Although this article briefly touches on estate taxes (the IRS circle), for most U.S. citizens, estate taxes are not a worry, given that the estate tax only applies to very large estates. Therefore, for 99% of us, estate planning is important because we want to make sure we provide for those we love after our death, to make sure our charitable interests are taken care of, and our estate is distributed according to our wishes.
The fundamental components of most estate plans include a will, a trust, powers of attorney for medical and financial decisions, and a living will. Given the uniqueness of individual circumstances, qualified professionals such as an estate and trust attorney, CPA, and investment advisor play a valuable role in guiding the estate planning process. Depending on one’s stage in life, the focus may vary; for instance, a young individual may prioritize powers of attorney and a living will, while a family with assets and dependents requires a comprehensive plan for unforeseen events.
As you prepare to engage with your estate planning team, consider these questions to define your goals and objectives:
- Are there concerns about heirs managing or protecting your wealth?
- Do your adult children have poor habits and behaviors with managing money?
- Do any family members have special needs?
- Whom do you want to leave your financial assets to?
- Are there specific assets earmarked for particular individuals?
- Are there unique needs of potential beneficiaries?
- Do you want to plan for college expenses for children and grandchildren?
- Are you concerned about asset protection from divorce or beneficiary’s future creditors?
- Are there charitable causes you would like to benefit from your estate?
- Do you need succession planning to ensure your company will continue for future generations?
Finally, let’s talk a bit about taxes. As mentioned, estate taxes become a planning matter only for the largest estates. As of 2024, a single decedent’s estate is exempt up to $13,610,000, and for married couples who plan and synchronize their estate plans, the total exemption is $27,220,000. Despite potential reductions in exemptions by 2026, many estates can avoid the 40% federal estate tax rate.
What about state-enforced estate taxes? Some states, like Massachusetts and New York, impose estate taxes, while others like Nebraska and New Jersey have an inheritance tax enforced upon the individual receiving an inheritance. Colorado, however, has no estate or inheritance tax.
Federal and state income taxes are often the taxes to be concerned about and careful asset transfer planning can significantly impact the tax picture for your loved ones. For example, a family residence transferred to the next generation while mom and dad are still alive could potentially create a severe income tax impact compared to transferring the residence to the next generation upon the second death of either mom or dad.
While this article is intended as a broad overview, estate planning involves intricate details beyond its scope. Nevertheless, it underscores the importance of having an intentional plan to ensure that the assets accumulated throughout life are distributed according to your wishes. Seek the support of experienced professionals to navigate this complex process and secure peace of mind for you and your loved ones.
Christopher L. West, CPA, PFS, is CEO and a Principal of DWC CPAs and Advisors and DWC Wealth Advisors. During his public accounting career as a tax professional and advisor, Chris specialized in mergers and acquisitions, real estate advisory, cost segregation studies, small business taxation, and estate planning and income tax planning for high net-worth individuals. His passion is helping others find fulfillment and their definition of success in their wealth journey. He is a licensed Certified Public Accountant, Personal Financial Specialist, and is a series 65 investment advisor representative with Global Retirement Partners, LLC. Chris graduated with a Bachelor of Science in Accounting from Colorado Mesa University, Grand Junction. Investment advisory services offered through Global Retirement Partners, LLC (GRP) dba DWC Wealth Advisors, an SEC registered investment advisor. GRP and DWC CPAs and Advisors are separate and unaffiliated entities.
