Estate planning, also known as ‘end of life planning’, is a term used to describe a number things that individuals do to prepare their finances for their final days—and to pass on as much of their hard-earned wealth as possible to others. Whether naming beneficiaries for your bank accounts or designating a power of attorney to help make financial decisions later in life, there are crucial things that everyone needs to do to ensure they are ready for their final days. And estate planning can get more complex as well, from setting up trusts to protect your assets to creating financial strategies for building generational wealth.
As a trusted local partner in the Eastern Panhandle of West Virginia, we often field questions about how best to navigate the estate planning process in our state, from estate taxes to the probate process. In this post, we’ll discuss basic considerations for estate planning, as well as ways in which our products and services can support your financial plans and goals.
Estate Planning: Managing Wealth for Future Generations
Whether you’re a parent or grandparent or a committed member of an organization or community, you probably want to leave behind a legacy, giving others a leg up and passing on any benefits you’ve had to future generations. While retirement planning allows you to grow savings to live off of during your post-work years, estate planning is the process of determining how to transfer your remaining wealth to your designated beneficiaries after your death.
But estate planning is more than simply deciding how to allocate your assets. Estate planning also involves strategizing to minimize taxes, avoid probate, and take specific steps to ensure that your wealth is distributed according to your wishes. Estate planning is also crucial to the building of generational wealth, assets that are passed down from generation to generation.
Major Components of Estate Planning
While every individual’s estate planning needs will look different, there are some key steps that everyone should take when they begin the process, as well as basic considerations you’ll need to make, regardless of your age or level of wealth.
Take Inventory of Your Assets and Liabilities
Before you can start preparing your estate for eventual distribution, you’ll need to account for all of your assets. Before meeting with an estate planning attorney or financial advisor, take the time to gather information about all your assets. You can start with a list and approximate value, but ideally you’d have deeds and titles, annual income statements, account statements, and/or appraisal information for each item.
Possible assets include:
- Real Estate (for personal use and rental)
- Businesses (including equipment and property)
- Vehicles and Equipment: personal vehicles, motorcycles, recreational vehicles, boats, equipment, and valuable tools
- Valuables: jewelry, collections, artifacts, art
- Investments: stocks, bonds, funds, retirement plans, Health Savings Accounts (HSA), cryptocurrency, and annuities
- Deposit Accounts: checking accounts, savings accounts, money market accounts, certificates of deposit
As you’re tallying up your assets, you’ll also want to account for any liabilities you have. In most states, including West Virginia, debts are settled before estate assets are distributed, and in it may be necessary to sell property to settle these debts if there aren’t sufficient cash funds in the estate. As Legal Aid of West Virginia explains, creditors have two years to make a claim on an estate. Liabilities to take stock of could include:
- Mortgages
- Loans and Liens
- Owed Taxes
- Credit Card Debt
- Lines of Credit
Consider Your Current and Ongoing Needs
Many of your assets, from rental deposits to retirement accounts, may be relied upon for income. If you need end-of-life care, it may also be necessary to liquidate some assets in order to cover medical or living costs. When planning your estate—especially if you are considering gifting some of your wealth before your death—be sure to give yourself enough to live comfortably on, with backup funds or plans for emergency expenses and ongoing care.
Estate planning isn’t just about passing on wealth—it’s also about ensuring that you don’t leave your loved ones in dire straits after your passing. If you have a family with minor children, life insurance is an important stopgap to replace lost income, cover funeral expenses, and pay off any medical debts incurred in the unfortunate event that you face a significant illness.
Learn About and Establishing Legal Directives
Trusts
Trusts are a form of asset protection that can allow your estate to bypass probate, the court process of distributing your estate which can be complicated, drawn out, and expensive. When you establish a trust, you can select a trustee to take over should you become incapacitated. Trusts are designed to preserve your wealth for your beneficiaries, and all management must align with this express goal. Irrevocable trusts are trusts that can’t be changed once established. Trusts can be expensive, so discuss the necessity with your estate planner before you decide to set one up.
Living Wills and Medical Power of Attorney
A living will, also known as a medical care directive, enforces your treatment wishes should you become incapacitated and unable to make decisions for yourself. You can designate a medical power of attorney (sometimes in the same directive) to help make healthcare and end-of-life decisions should you become incapacitated, as well.
Financial Power of Attorney (Durable and Limited)
When you appoint a financial power of attorney, you are giving another individual authority to make total or select financial decisions on your behalf. This could be as simple as cutting checks to pay bills, or as significant as selling or purchasing real estate or stocks. It’s important to only select an individual who you wholeheartedly trust, and appoint a backup power of attorney, should your original choice be unable to fulfill their duties.
Name Your Beneficiaries
When you work with a lawyer (more on this below), you have the option of selecting specific beneficiaries for either portions of your estate, or for specific assets. There is no one-size-fits-all plan for individuals and families. Keep in mind individual needs, as well as grievances that might arise after your departure—something you may not want to bestow on your heirs. Ultimately, the distribution of your wealth is entirely up to you.
In addition to naming beneficiaries in your will, you should also take the time to name beneficiaries (and contingent beneficiaries) for your accounts, from IRAs to life insurance policies. Because circumstances change—children or grandchildren are born, spouses divorce, heirs may pass away—it’s important to review your beneficiaries from time to time.
‘Transfer Upon Death’ or ‘Payable Upon Death’ Accounts
It’s incredibly useful to have at least one deposit account (like a checking account) with sufficient funds designated as “payable upon death”. This means that a select individual will have access to the account in order to pay for immediate expenses before your estate is settled. This could include anything from utility bills to funeral expenses and legal fees. Payable upon death accounts bypass probate and are passed onto the designated beneficiary, regardless of any will or trusts in place. This designation is free and arranged directly with your bank.
Know Federal and West Virginia Estate Laws
While there is no estate tax in West Virginia, and inheritances of less than $12,920,000 (2023) are not subject to federal taxes, be aware that gifts made to individual before death have an annual cap (currently $17,000).
Beyond taxes, there are a lot of other legalities that you will need to navigate when planning for your estate settlement (and making things easier for the executor of your will). For instance, in West Virginia, probate generally occurs in the county where an individual had their residence, and can last two years or more. However, it’s possible to avoid probate altogether by working with a professional estate planner to establish trusts, and make all accounts payable upon death.
Work with Professionals to Plan Your Estate
Estate laws and tax requirements vary state-to-state and can be exceedingly complex. From filling out appropriate legal directives to perfecting the language of your will, working with a legal or financial professional can be well worth the money you spend. While small estates of $50,000 or less may not require probate and be simple enough to settle independently, if you are planning to pass along a sizable estate, you’ll want to consult a professional to be sure you do it right, utilizing tax-efficient strategies to minimize costs for both you and your heirs.
Furthermore, working with financial advisors can help you create a plan of action for how to build your wealth, supporting you in your retirement while leaving something to pass onto the next generation.
What is retirement planning, and how does it relate to estate planning?
Retirement planning and estate planning are two different wealth-management strategies. One focuses on having income in your retirement years, and one focuses on how to pass on your wealth after your death. However, the two strategies often go hand-in-hand—ideally you will not use all of your savings and investments, running out of income during your retirement years, and there will be some wealth to pass along.
Retirement Planning: Securing Your Golden Years
Retirement planning is the process of strategizing how to save and invest sufficient funds in your working years in order to not only meet but exceed your economic needs during retirement. There are three essential aspects of retirement planning:
Budgeting
When you budget for your retirement you’ll need to first tally up your expected income from other sources, including social security. Once you determine your total expected income from other sources, you’ll need to calculate a reasonable monthly or annual income you’ll require to live comfortably.
Experts usually recommend aiming for at least 80% or ten times the amount of your current income. After you’ve determined your expected income and income requirements, you can work with a retirement planner to arrive at a figure to aim for with your retirement saving and investing.
Saving
Perhaps the most important aspect of retirement planning is knowing how much income you need to save each month—and then creating a plan to do it. The easiest way to save is to have funds deducted from your paycheck each week and deposited into one or more designated retirement accounts.
Most people will not be able to meet their retirement goals by saving alone. Not only will your funds lose buying power each year due to inflation, but accumulating the entire amount you’ll need to live on for retirement through just setting aside a percentage of income each month can quickly eat into your current living expenses.
For instance, if your current income is $80,000, you have 30 years left until retirement, and you plan to save 10 times your current income for retirement, you would need to save $800,000 total. That comes to over $26,000 per year (and more if you factor in inflation)—an amount many individuals may find difficult to afford. That’s where investments come in.
Investing
Your retirement planner can help you determine how much you need to set aside each month to invest, growing your saved funds exponentially through compounding interest. In retirement accounts, your earnings (interest and dividends) are added to your principal, allowing your savings to not only grow faster, but also grow larger over time.
Returning to our example above, without compound interest you would need to set aside $26,000 a year to accumulate $800,000 in retirement savings. However, to achieve the same total nest egg using a 401(K) with an average return of 7%, you’d only need to set aside just a little over 10% of your income, or about $8,200 a year, for thirty years. If your employee provides a match, your savings can grow even more!
Many people simply use retirement plans, like work-sponsored 401(k)s and as the primary tools for growing their nest egg. These accounts can often be managed and customized with the assistance of a retirement planner—allocating different amounts of money to specific investment funds based on your age and preferred level of risk.
What are the tax benefits of using a retirement account?
Besides the fact that using retirement accounts can simplify your retirement-planning process and grow your contributions, they also offer significant tax benefits for both you, and potentially your heirs. Firstly, all designated retirement plans grow tax-free. Contributions to traditional IRAs and 401(k)s are made pre-tax, meaning they reduce your taxable income and burden for the year. Roth IRAs and Roth 401(k)s offer tax savings in retirement—your withdrawals will not be considered taxable income.
Additionally, Roth IRAs can be passed onto your heirs tax-free, making them ideal vehicles for retirement savings if you believe a portion of your funds will remain unused—which is, of course, the goal.
The Role of Jefferson Security Bank in Wealth Management and Estate Planning
While bank employees are financial professionals—only estate planning and trust services can provide specific financial and legal advice. The role of banks like Jefferson Security Bank is to support their clients in the retirement and estate planning process by offering appropriate products and services for managing wealth.
At Jefferson Security Bank, we are happy to work with you and your financial advisors in executing your plans, setting up and managing the necessary accounts and financial tools to achieve your retirement and estate planning goals.
Jefferson Savings Bank Products Helpful in Wealth Planning
Some of the most common types of accounts that we offer that are often instrumental in estate and financial planning include:
- Checking Accounts
- Savings Accounts
- Traditional Savings Accounts
- Individual Retirement Accounts (IRAs)
- Certificates of Deposit (CDs)
When you have accounts with us, we can work with you to set up beneficiaries for each of your accounts—one of the most effective ways to help your estate avoid probate.
Securing Your Legacy: The Final Word on Estate Planning
We know that retirement and end-of-life planning can be a daunting undertaking, and are tasks that not many people look forward to doing. However, to ensure the best life for your surviving family, and a lasting legacy for yourself, they’re an important part of your overall financial management. And proper estate planning can also provide security and peace of mind to your loved ones—when they need it the most.
At Jefferson Security Bank, we can support your efforts with flexible accounts, dedicated customer service, and years of experience working with financial advisors and attorneys throughout the Eastern Panhandle in Shepherdstown, Martinsburg, Charles Town, and Inwood, West Virginia (and Sharpsburg, Maryland, too!). Connect with us today to discover how our products and services can enhance your estate planning strategy and safeguard your family's future.