An effective estate plan is not limited to the individuals who want to pass on their property and money after they die. It should also include an estate’s heirs and beneficiaries.
Effective estate planning includes upstream planning, which focuses on what family members may be inheriting from their parents or other relatives. This planning is important if the estate is large so that recipients can make decisions about their own assets. It also includes preparation and communication to avoid financial problems such as taxes.
Leaving money in a trust can help reduce taxes on large estates. The money belongs to the trust, which protects the beneficiary if they ever divorce or get sued.
A generation-skipping tax may be another advantage. Executors of the parents’ estates may apply their GST exemption to the trust or its assets. When this occurs, these assets are not taxed when they are distributed or passed on to grandchildren, even if their children are trust beneficiaries.
Engaging in upstream planning also encourages families to discuss multigenerational wealth. Beside tax and other financial considerations, these conversations are an opportunity for the generation holding the wealth to discuss how they obtain it and their wishes on how future generations should use their inheritances.
Early communication is also a way to provide information about assets so that heirs can have an overview of the estate and begin financial planning. Estate documents could be modified to address these needs.
Parents and other older relatives may also have needs that must be addressed while they are alive, such as who will make financial or healthcare decisions on their behalf if they ever become incapacitated. Families can discuss powers of attorney and end-of-life decision making and who can serve as agents.
Children may also want to set aside money for their parents, especially if their parents are older or have health problems, to address their needs if the children die first.
A family business may also cause complications. This occurs, for example, if the parents had a business for many years and children and other relatives played little or no part in its operation.
Upstream planning can cover whether any family members wish to continue or control the business. Valuation and compensation are other matters that may be addressed.
Attorneys can assist families develop a plan that meets their needs. They may prepare the required documents that meet New Jersey’s legal requirements.