Photo credit: www.kiplinger.com
Estate planning is essential for many Americans, but it often gets sidelined as a task that needs to be done but is never prioritized.
Currently, about 55% of Americans lack any estate planning documents, and only 31% have a basic will, as indicated by a recent survey from Trust & Will. This statistic marks a decline from 2021, when 46% of adults had a will, according to a survey conducted by Gallup.
Estate planning is crucial at any time, but as 2025 approaches, the urgency is particularly pronounced. This is especially relevant for high-net-worth individuals, as the lifetime estate and gift tax exclusion established by the Tax Cuts and Jobs Act may expire at the year’s end unless legislative action is taken.
Estate Planning Tips for 2025
It’s essential to reassess your estate planning strategies given potential changes in tax legislation.
“We’re uncertain whether the tax benefits introduced in the Jobs Act will continue beyond a few years,” says Bill Ringham, a private wealth strategies director at RBC Wealth Management. “Many anticipate an extension, but the current legislative focus on tariffs means less attention is being given to tax issues. This uncertainty complicates estate planning, particularly for those with significant assets.”
Regardless of your financial standing, establishing a solid estate plan is imperative. Whether you currently have a plan or need to establish one, consider these five essential estate planning steps for 2025.
1. Establish a Will if You Don’t Have One
Various reasons often prevent individuals from creating an estate plan, including time constraints, a belief that nothing will happen to them, or the assumption that their assets are insufficient. However, having a comprehensive estate plan—including a last will and testament, a financial power of attorney, and an advance healthcare directive—is vital for all individuals.
A last will and testament clarifies how your assets should be allocated upon your passing, allows for the designation of guardians for your children, and appoints an executor to administer your estate. Without it, the probate process can be lengthy and complicated.
A financial power of attorney designates someone to manage your finances and make decisions in case of your incapacity. Meanwhile, an advance healthcare directive details your medical treatment preferences if you can’t communicate them and allows for the appointment of someone to make medical decisions on your behalf.
“The most alarming situation is lacking an estate plan altogether,” observes Douglas Boneparth, a CFP and president of Bone Fide Wealth. “It’s particularly concerning if you have children, assets, or loved ones dependent on you.”
To create a will and estate plan, you have a choice: collaborate with a trust and estate attorney or utilize online tools that facilitate the process.
In today’s digital age, it’s also crucial to consider your online presence. From social media accounts to digital subscriptions and online bank accounts, everyone has some form of digital assets that should be addressed in your estate planning. The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADDA) enacted in 2015 provides guidelines for how these digital assets should be managed after death. Currently, 47 states have adopted this law, with Louisiana, Massachusetts, and Oklahoma being the exceptions.
To simplify the transition for your loved ones, Maggi Keating, a CFP at FBB Capital Partners, emphasizes the importance of appointing a digital executor to manage your online accounts. “It’s not just about your crypto investments; your social media and subscriptions also need legal attention,” she states. “Clearly defining how your digital legacy should be handled will be a focal point in estate planning moving forward.”
Creating a plan for your digital assets doesn’t strictly require an attorney, but for extensive digital footprints, professional assistance may be beneficial.
For those who prefer to manage this independently, here are some steps:
– Compile a list of all your digital assets.
– Securely store all passwords and login details.
– Choose someone responsible to manage your accounts posthumously.
3. Utilize Exemptions While They Still Last
The Tax Cuts and Jobs Act of late 2017 established an annual tax gift exclusion of $19,000 per recipient, as well as a lifetime exclusion of $13.99 million for gifts and estates. While it is expected that these provisions may be extended, if Congress cannot facilitate this, these generous tax exemptions will lapse in 2026. Thus, it could be wise to act sooner rather than later.
“In 2025, I can transfer $13.99 million to my children without incurring federal gift taxes. However, if the exemption decreases to $7 million in 2026, I’ll face tax liabilities on the remaining sum,” explains Ringham. “This scenario could translate to an additional $2.8 million in federal taxes owed in 2026 that could have been avoided with early action.”
If direct gifting seems daunting, consider setting up an irrevocable trust that can effectively benefit your descendants over multiple generations.
4. Consider Larger Gifts During Market Declines
The markets have experienced volatility, especially following significant political announcements. While this can be discouraging for your investment portfolio, it can also present unique opportunities for transferring assets to your heirs, especially stocks that may rebound in value.
For example, if you possess 10,000 shares of a stock priced at $100 each, currently valued at $1 million, a market downturn could allow you to gift a greater number of shares while remaining within the $1 million limit. If the market eventually recovers, your heirs will benefit from the appreciated value.
“Market downturns can create beneficial opportunities,” notes Ringham.
5. Take Action Without Delay
Whether it involves updating an existing estate plan or creating a new one, it is important to take action promptly. The subjects of death and incapacity are not pleasant to contemplate, but delaying this critical planning can place a significant burden on your loved ones.
As Boneparth rightly states, “Take action now. I understand that discussing death and disability can feel heavy, but the sooner you complete your planning, the sooner you can find peace of mind.”
Related Content
Source
www.kiplinger.com