10 Estate Planning Strategies to Consider

Estate planning isn’t just for the wealthy or retirees, it’s an important part of protecting your family and your financial legacy at almost any stage of life. Without a plan, decisions about your assets, healthcare and even the care of minor children may be left to state law instead of your own wishes. Understanding the most common estate planning strategies can help you create a plan that provides clarity, reduces potential conflicts and gives you greater peace of mind.

If you want to create an estate plan, a financial advisor can walk you through specific strategies for your needs and goals.

Estate Planning Basics

Estate planning is the process of organizing your financial and legal affairs so your assets are managed and distributed according to your wishes during your lifetime and after your death. A comprehensive estate plan can also address important issues such as healthcare decisions, financial management in the event of incapacity and the care of minor children. Additionally, it helps protect your assets from unnecessary legal expenses and delays in the probate process.

An estate plan typically includes documents such as a will, powers of attorney, advance healthcare directives and, in some cases, one or more trusts. It may also involve reviewing beneficiary designations on retirement accounts and life insurance policies, as well as considering strategies to reduce taxes or simplify the transfer of assets.

Estate planning is not a one-time task. Major life events, including marriage, divorce, the birth of a child, the death of a family member or significant changes in your finances, can all warrant updates to your plan. Reviewing your estate plan periodically can help ensure it continues to reflect your goals and current circumstances.

Estate Planning Strategies

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Here are ten common estate planning strategies to help you determine how you want to manage and distribute your assets.

1. Create a Will

A will is a foundational document in estate planning. It specifies how assets will be distributed and can help prevent legal disputes among heirs. Without a will, state laws determine the distribution of assets, which might not align with personal wishes. A will can also be used to appoint a legal guardian for minor children.

2. Annual Gifting

Annual gifting allows you to transfer wealth to loved ones without incurring gift tax. Each year, you can give up to a certain amount per person, $18,000 in 2024, reducing the size of your estate. This strategy can help manage estate taxes and support family members during your lifetime.

3. Establish a Spousal Lifetime Access Trust (SLAT)

A spousal lifetime access trust (SLAT) is an irrevocable trust designed to benefit your spouse while potentially removing assets from your taxable estate. It allows one spouse to make a gift to the trust, which the other spouse can access during their lifetime. This strategy can provide financial security for the beneficiary spouse while also potentially reducing estate taxes.

4. Preserve Step-Up in Basis With a Revocable Trust

A step-up in basis can reduce taxes by adjusting the value of an inherited asset to its market value at the time of the owner’s death. Unlike an irrevocable trust, a revocable trust can preserve the step-up in basis by keeping the assets as part of the person’s taxable estate until they are transferred to beneficiaries. This means that beneficiaries inherit assets at their current market value, rather than the original purchase price. This strategy can significantly lower capital gains taxes when assets are eventually sold.

5. Consider a Generation-Skipping Trust

A generation-skipping trust (GST) can transfer wealth directly to grandchildren, bypassing the grantor’s children. This can help minimize estate taxes that would otherwise be incurred if assets were transferred through each generational level. It allows the grantor to provide for grandchildren while ensuring the assets are protected from creditors and potential divorce settlements.

6. Assign Power of Attorney

Power of attorney (POA) is a legal document that grants one person the authority to act on another’s behalf. Different types of POA can cover financial matters, healthcare decisions or both. In estate planning a POA enables a trusted individual to manage your affairs if you become incapacitated. This can provide peace of mind, knowing that your interests will be handled according to your wishes even if you are unable to make decisions yourself.

7. Leverage Roth IRAs

Roth IRAs are retirement saving vehicles that can offer significant estate planning benefits. Unlike traditional IRAs, Roth IRAs allow beneficiaries to withdraw funds without incurring income taxes, maximizing the value of an inheritance. Additionally, Roth IRAs do not require minimum distributions during the account holder’s lifetime, enabling the account to grow tax-free over a more extended period. Roth IRAs can thus assist those aiming to leave a substantial, tax-efficient legacy to heirs.

8. Set Up a Grantor Retained Annuity Trust (GRAT)

A grantor retained annuity trust (GRAT) can transfer wealth while minimizing gift taxes. The grantor transfers assets into the trust and receives an annuity for a specified term. If the assets appreciate more than the IRS’s assumed rate, the excess growth passes to the beneficiaries tax-free. GRATs are especially beneficial for high-net-worth individuals looking to reduce their taxable estate and provide a strategic way to pass on wealth to heirs while retaining some income during the trust term.

9. Plan for Medicaid

Medicaid planning can help preserve assets for your heirs while meeting their long-term care needs. Eligibility requires meeting specific income and asset thresholds, so strategies to qualify include asset transfers, trusts and spending down certain assets within legal guidelines.

10. Name Beneficiaries

Many financial accounts, retirement plans and life insurance policies allow you to designate beneficiaries directly. Reviewing these designations regularly helps ensure they reflect your current wishes and coordinate with the rest of your estate plan. Not having beneficiaries name can be detrimental to assets passing on to the next generation.

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Additional Considerations

An advisor explaining different estate planning strategies.

Estate planning doesn’t end with the strategies above. Other key considerations include:

Considering additional insurance options: Insurance plays a key role in estate planning. Life insurance can provide liquidity to cover estate taxes, debts and other expenses, ensuring your beneficiaries are not burdened. Additionally, long-term care insurance can protect your assets from being depleted by healthcare costs.
Updating beneficiaries: Regularly updating beneficiary designations is crucial to align with your current wishes and life changes. Beneficiary designations on retirement accounts, life insurance policies and other assets supersede wills, so keeping them current ensures the intended recipients inherit the assets. Consider reviewing these designations after major life events such as marriages, divorces and births.
Planning for digital assets: Digital assets, including online accounts, cryptocurrencies and digital files, require special consideration in estate planning. Create an inventory of digital assets and provide access instructions to a trusted individual. This ensures that digital assets are managed and transferred according to your wishes, preventing loss or unauthorized access.

Bottom Line

Estate planning is about more than deciding who inherits your assets, it’s about protecting your loved ones and ensuring your financial and personal wishes are carried out. By combining key strategies such as creating a will, establishing trusts, updating beneficiary designations and preparing for incapacity, you can build a more comprehensive estate plan. Working with an estate planning attorney and financial advisor can help ensure your plan reflects your goals and adapts as your circumstances change.

Tips for Estate Planning

A financial advisor can help you create an estate plan to manage and distribute your assets. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re looking for another strategy to manage taxes on your estate, the gift tax exclusion can allow you to transfer assets to heirs tax-free up to this limit in 2024.