Empty Nesters: Is Your Estate Plan “Right-Sized”?
For twenty years or more, you’ve built much of your life—and most of your schedule—around your kids. Daycare, youth sports, music lessons, school events, and all the transportation and other logistics that go along with being a parent. Later, trips to their college for parent weekends and other activities absorbed big stretches of your time. But now, all that is behind you. The kids have started their careers and, in many cases, their own families, and the “nest”—the home that was once the locus of so much activity—is much quieter.
For many empty nesters, a grieving process can occur, even though you’ve spent years preparing your children for exactly this moment. Some sadness is certainly natural. But along with it, there can also be a sense of relief and even excitement as we transition into a time of life when we have more control over our time, our activities, and even our finances (anyone who has raised sons can especially attest to the reductions in the grocery bill!)
But one area that often gets overlooked during this important transition time is the estate plan. Remember: your family’s makeup and needs are much different now than when you were raising young children. For young families, the most important estate planning consideration is typically providing for guardianship of underage children and possibly trusts to provide for their needs in the event of their parents’ untimely passing. But now, those needs no longer exist. And other changes require consideration. Let’s take a look at four key areas of estate planning that new empty-nesters should review.
1. Inheritance and trusts. The typical focus of wills and trusts for younger families is providing for the needs of young children. But now, it may be more important to ensure the financial security of your spouse. On the other hand, those with significant estates may wish to adjust the terms of a family trust to better control access to the funds by the heirs and may consider establishing a Bloodline trust. Perhaps one of the children has become a partner in a family business, which alters how you want to distribute other assets. The point is, you should carefully review all your trusts in the context of your new life circumstances, to make sure that they are accomplishing what is most important for you and your heirs in this new stage of life.
2. Life insurance. For many young families, life insurance is intended to provide an “instant estate” in the event of the death of a family breadwinner. But now that the children are on their own, your need for life insurance may have diminished, especially if your assets have grown significantly over the years. Or, it may be that your need has shifted from providing for your children to funding a business buyout or providing “key person” coverage that would be necessitated by your passing. In either case, you should review your policies with special attention to your beneficiary designations to make sure that any proceeds reflect your current wishes. And while you’re at it, you should also review the beneficiary designations on all your retirement accounts, as these funds will “pass by contract” according to the beneficiary designation, which may or may not be the same as what is indicated in your will.
3. Powers of attorney. Review your powers of attorney to see if the agent you appointed is still the same person who you want to serve in this capacity? Perhaps one of your children has begun a career in medicine and you want to entrust them with your medical directives. Or, maybe spouses who originally granted powers of attorney to each other, would now prefer that a different family member had those responsibilities. Now is the time to make sure these important documents are up-to-date and aligned with your current situation.
4. Taxation. Persons with significant assets should always be aware of where they stand with regard to the taxation of their estate. Though the current threshold for the estate tax exclusion is $12.92 million per person ($25.84 million for a married couple), keep in mind that this higher exemption level is scheduled to sunset in 2025; absent new legislation, the exemption will be reduced to about $6.4 million per person ($12.9 million for married couples). For some, this may indicate a need to revise trusts or transfer additional assets to an existing trust, such as contributing low valuation asset with high appreciation probabilities to a grantor-retained annuity trust (GRAT). You may also want to re-evaluate your annual gifting plans (married couples can gift a maximum of $34,000 to one or more persons without needing to file a gift tax return). Your new status as an empty nester offers a perfect opportunity to ensure that as many of your assets as legally possible will pass to your heirs and favorite charities, rather than to the US Treasury.
As a fiduciary wealth manager, Quantum Advisors is committed to placing our client’s best interest at the center of all our guidance, and through every stage of life. To learn more, visit our website, and read our article, “Logically Speaking: How Your Financial Plan Helps You Stay Steady during Market Volatility,” to see how your emotions play a factor in your investment success.
DISCLOSURE: Quantum Financial Advisors, LLC (“Quantum”) is an SEC registered investment adviser with its principal place of business in the State of California. Quantum may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. The article is for educational purposes only; and contains the opinions of the author, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy or deemed to provide investment recommendations, and it should not be relied on as such. Any subsequent, direct communication by Quantum with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.
For information pertaining to the registration status of Quantum, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).
Investments involve risk and, unless otherwise stated, are not guaranteed. The Information was based on sources we deem to be reliable, but we make no representations as to its accuracy. Past performance is not indicative of future results. Readers of this information should consult their own financial advisor, lawyer, accountant, or other advisor before making any financial decision.
