Estate planning can involve topics that are difficult to acknowledge, but a solid, current estate plan acts as a blueprint for safeguarding assets and adequately providing for loved ones. For those who do not have an updated estate plan, revising an existing plan or starting to plan may seem daunting and could delay one from taking action. This article highlights the benefits of proactive estate planning strategies and emphasizes the value of professional assistance throughout the process.

Impact #1: Estate Tax Liability

Failing to plan for the transfer of your estate can mean diverting some of your assets to cover estate taxes. Proactive steps like identifying all available deductions, evaluating gifting strategies, and establishing a trust can take significant time and effort.

The IRS allows assets included in an estate and taxable gifts made during the decedent’s life to change hands tax-free up to a certain amount. Any amount over this lifetime exemption ($13.61 million in 2024) is subject to estate taxes. The future of the federal estate and gift tax exemption is still uncertain. Absent legislative action, it could be reduced substantially as soon as 2026. The top tax rate for estate taxes is 40%, which highlights the importance of seeking professional help to reduce or even eliminate the amount of taxes owed.

“When we work with our clients, we can define what estate taxes may potentially be generated by their taxable estate.” – Guy Hockerman, CPA, CFP^®, Financial Planning Manager at Commerce Trust.

Impact #2: Administrative Impact on Loved Ones

It is important to consider the emotional impact on loved ones charged with handling the tasks associated with the estate holder’s passing. Unfinished planning often falls to the decedent’s closest family members, introducing potentially difficult family conversations regarding the distribution of assets and other legal matters.

Complex family dynamics can magnify the hardships associated with an under-prepared estate transfer. For example, agreeing on which assets should go to different heirs if some items were unaccounted for in the planning process could become complicated as families attempt to manage the emotions and intentions of those involved.

A proactive estate plan developed in conjunction with your wealth management team and estate planning professionals could make a world of difference for those left behind. Resolving estate planning tasks before the estate holder’s passing allows family members to focus on what matters most to them versus attempting to retroactively address administrative responsibilities.

“The financial and emotional benefits to proactive estate planning are real. It is going to be significantly harder for other family members to handle the estate transition without a clear and thorough plan in place,” says Todd Gebhardt, CPA, Director of Tax Services at Commerce Trust.

Impact #3: The Probate Legal Process

Working with an estate planning attorney before the transfer of assets is usually part of an effective estate planning strategy. Preparing for this meeting with a wealth management professional can help you ensure your goals and instructions are clearly communicated.

“Our role as wealth management professionals is to serve as someone that you can talk to who understands your financial situation and who can help to get some of the leg work done in advance of sitting down with an estate planning attorney,” says Guy Hockerman.

Your wealth management team and estate planning attorney can also help you identify and implement strategies to avoid probate. Probate is a court proceeding that legally validates the distribution of assets to beneficiaries as outlined in the decedent’s will. Generally, the more time the probate process takes, the more expensive it will be. Taking proactive steps to shorten or avoid the probate process could save a significant amount of time and money.

Impact #4: Unintended Distribution of Assets

In a case where no estate planning has been done, dying without a will means a person has died “intestate.” Estates that end up in a condition of intestacy are subject to asset distribution as outlined by state intestacy laws. In other words, the decision of which beneficiaries will inherit assets is removed from the decedent and is instead mandated by a state court.

Developing a comprehensive estate plan allows you to decide who receives your assets. By engaging in proactive estate planning, you ensure that your assets are distributed according to your instructions.

Impact #5: Changes in Your Personal Situation

Revisiting your plan to account for changes in estate value, personal goals, and estate tax legislation is considered a best practice for estate planning. Even if an estate plan is in place, alterations may be needed when circumstances change. Those alterations could be significant depending on the magnitude of life events.

“We don’t view estate planning as a one-time exercise. An effective estate plan should be proactively reviewed over time to incorporate any needed changes and take advantage of new planning opportunities,” says Todd Gebhardt.

Regularly consulting with your wealth management team to refine your estate plan ensures that your loved ones will be provided for, and your assets are distributed as intended. An outdated estate plan could unintentionally expose your beneficiaries to risks like higher taxes, asset disputes, and the possibility of lengthy administration in your absence.

The time will come when the planning turns to action. Preparing early and reevaluating often can help secure the legacy you envision for your family and charitable priorities.

Comprehensive Estate Planning at Commerce Trust

The importance of developing an estate plan early, and updating it often, cannot be understated. At Commerce Trust, you can consult with a team of specialists dedicated to you and your financial goals.

Commerce Trust provides a range of in-house private wealth management services to ensure you are connected to resources that inform a personalized estate plan from start to finish. Whether you need to secure an executor, establish a trust, or prepare for estate taxes, contact the Commerce Trust team today to initiate estate planning discussions.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP^® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Investments & Wealth Institute™ (The Institute) is the owner of the certification marks "CPWA," and "Certified Private Wealth Advisor." Use of CPWA, and/or Certified Private Wealth Advisor signifies that the user has successfully completed The Institute's initial and ongoing credentialing requirements for wealth advisors.

The opinions and other information in the commentary are provided as of April 12, 2024. This summary is intended to provide general information only, and may be of value to the reader and audience.

This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. 

Commerce Trust does not provide tax advice to customers unless engaged to do so. Commerce Trust does not provide legal advice to its customers. Consult an attorney for legal advice, including drafting and execution of estate planning documents.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Commerce Trust is a division of Commerce Bank.

Investment Products: Not FDIC Insured | May Lose Value | No Bank Guarantee