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How to Protect your Assets for your Heirs

How to Protect your Assets for your Heirs

October 07, 2020
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Most are aware that estate planning is crucial to protecting your estate and minimizing expenses and legal concerns, however, many do not know where to begin. Frankly, this is a difficult process that requires far more attention than a one-size-fits-all approach. However, with a dedicated team of wealth management, accounting and legal experts can help protect your hard work, persistent savings and investments can be sheltered from outside threats, fees, taxes and legal complications.

Lawsuits often arise from frivolous and unpredictable angles from a variety of interests, which can even include current and former employees, neighbors, customers, or family members. Estate planning can place your assets in vehicles that are legally protected. When assets are out of reach from litigation, the motivation of individuals to file a lawsuit often disappears.

Nonetheless, there are strategic and targeted ways to get started in defending your estate today, however making some of these choices without a proper estate planning team could cost you dearly.

  • Transfer assets to your spouse's name. However, if you divorce, the end results could be different from what you intended.
  • Put more money into your employer-sponsored retirement plan; it likely has further legal protection.
  • Buy an umbrella insurance policy that protects you from personal injury claims above the standard coverage offered by your home and auto policies.
  • Make the most of your state's laws regarding homesteads, annuities, and life insurance. Paying down your mortgage, for example, could protect cash that is otherwise vulnerable.
  • Don't mix business assets with personal assets. That way, if your company runs into a problem, your personal assets may not be at risk and vice versa.
  • Always update your will during a significant life event (child, spouse, inheritance etc.), but don’t forget that wills are not say all be all and accounts first are inherited per beneficiary information.
  • The person you name to receive your retirement accounts and insurance proceeds will override whomever is listed in your will, so make sure that your beneficiary designation is current.
    • immediately update those designations if you’ve gotten married or divorced, if one of your beneficiaries has died or if you’ve had a child.

Some of the most valuable techniques, funds, and accounts your estate management team should provide include:

  • Segregated Funds - a product offered by a life insurance company pass by way of a beneficiary designation. This not only passes probate, but also does not incur any administrative or executor costs.
  • Using an Alternate Valuation Date to evaluate assets. This provides up to six months after the date of death to complete valuation and is only applied if it will decrease both the gross amount of the estate and the estate tax liability, which often results in a larger inheritance to the beneficiaries as any property disposed of or sold within that six-month period is valued on the date of the sale.
  • Revocable or Irrevocable Trusts can be great legal vehicles, just ensure your heir isn’t a joint owner for investment ownership purposes. This can actually increase the taxes the heir pays because when an account holder dies, the joint holder inherits not only the assets, but also the cost basis of the assets. Cost Basis is used to determine the capital gain of the assets since purchase, which is equal to the difference between the asset's cost basis and the current market value. For long-held assets, this can mean a significant tax hit when the heir sells the asset.
  • Inherited retirement assets are not taxable until they’re distributed. Certain rules may apply to when the distributions must occur if the beneficiary is not a spouse, so a close review is required.
  • If one spouse dies, the surviving spouse usually can take over their spouse's IRA as their own. However, this is an often confusing and complicated process that can cost you dearly if not correctly executed.
  • Making a gift - If you're planning to will assets at death, you could begin while still living. You can give a certain amount to each person—$15,000 for 2020—without being subject to gift taxes in most cases.
  • Contributions and earnings in your traditional and Roth individual retirement accounts (IRAs) have an inflation-adjusted protection cap of $1 million against bankruptcy proceedings. However, the bankruptcy court has the discretion to increase this cap in the interest of justice. In addition, amounts rolled over from qualified plans, such as 403(b) and 457 plans, have unlimited protection. However, this protection only applies to bankruptcy, and must be adequately defended.
  • Many states, such as Alaska, Delaware, Rhode Island, Nevada, and South Dakota, allow asset protection trusts (APT), and you don't even need to be a resident of the state to buy into one. However, these can be exceptionally difficult and confusing to develop, with errors having the potential to put you and your heirs at risk.

This is only the beginning and a brief overview of some solutions used in the extremely complex and regulated financial industry and institutions across the United States.

At KCA Wealth Management we are devoted to providing our clients with the optimal financial planning strategies to maximize their assets value, while minimizing frustration and the impacts of any market fluctuations or unexpected expenses from hampering their goals even after life.

Advisory Services offered through Investment Advisors, a division of ProEquities a Registered Investment Advisor. Securities offered through ProEquities a Registered Broker/Dealer, and member FINRA and SIPC. KCA Wealth Management, LLC is independent of ProEquities. This material is being provided for informational purposes only with the understanding that neither KCA Wealth nor ProEquities is rendering tax, legal or accounting advice. Please consult with your CPA or other appropriate advisors on all matters pertaining to legal, accounting or tax obligations and requirements.