Estate Planning Tips for Protecting Your Assets

Effective estate planning ensures a secure financial future for both you and your loved ones and also allows you to leave the legacy you desire.

You’ve worked your whole life to build up your assets and would like nothing more than to see that wealth passed on to be enjoyed by your future generations. But if you’re not careful, thanks to the complexity of various laws and taxes, the IRS could end up becoming one of your beneficiaries or your estate may be subject to long delays. To minimize this situation as much as possible, here are a few estate planning tips that will help protect your assets and ensure they pass on according to your wishes.

This newsletter will highlight the two basic ways assets transfer outside of probate and provide an introduction to complex planning to reduce potential taxes.

After you pass away, your gross assets are counted as part of your total estate and subject to the court process of probate. Even if you have a last will and testament that designates who the beneficiaries should be, both the will and the assets will still have to pass through a probate hearing. 

Operation of Law

The simplest way to avoid probate and pass your wealth directly to your intended beneficiaries is to leverage something known as the operation of law. This is done by making sure you have a beneficiary designation assigned to each account. The two most common types of beneficiary designations are:

  • Transfer-on-death (TOD) – Assets such as retirement accounts or real estate where the named beneficiaries have no access to or control over the assets while you are alive.
  • Pay-on-death (POD) – Similar to a TOD but focuses more on your bank assets (savings, CD’s, etc.) instead of brokerage or real estate assets.

It’s important to note that in the case of when there is a difference between who is listed as the beneficiary in a will versus the POD or TOD for an asset, the person named on the POD or TOD will prevail. It is important to verify all banking accounts and individual accounts have correct beneficiaries listed.

Revocable Living Trusts

Revocable living trusts are another useful way to avoid the probate process and have your assets pass directly to your heirs. When using one, you retain all the rights and ownership of your assets while you are alive. Then, upon death, your assets transfer to the trust where they can be protected from creditors and distributed to your beneficiaries outside of probate.

A revocable living trust can include any number of assets such as bank accounts, real estate, and any other valuable possessions. In addition, you can divide the assets and stipulate the terms of the distribution any way you wish. For example, you could leave a higher percentage to certain family members or delay the distributions for several years (if they are a minor).


If you were planning to leave some of your assets to your grandchildren or anyone else who is more than 37.5 years younger than you, the IRS will see this as a lost opportunity to effectively collect multiple taxes, since wealth typically passes from one generation to the next. As a result, they will instead impose what’s known as the generation-skipping tax (GST) which is an additional 40% on top of the estate tax.

Fortunately, you can avoid the GST by using what’s known as the lifetime exemption. This allows you to make a gift to a trust of up to $11.58 million (as of 2020) that can be distributed to your grandchildren without incurring the GST. Often times when you have children that are financial independent you may want to consider having a portion of your estate skip them and go directly to your grandchildren to avoid the potential for double taxation.

Irrevocable Life Insurance Trust

Life insurance is primarily used to financially support surviving family members while working. That said, it can also provide liquidity and pay for end of life expenses and, it can also be helpful for other estate expenses too. For example, a life insurance policy can provide the liquidity needed to support assets held in the estate, such as the upkeep of a property or business. In addition, it can also be used to even out estates between beneficiaries. If you have a large estate or are worried estate tax exemption amounts will go down, an Irrevocable life insurance trust can help pay for estate taxes without further reduction of your heir’s inheritance. 

While life insurance proceeds are generally tax-free for beneficiaries, they can be counted towards the taxes on your gross estate value when you pass away if policies are not structured correctly. To reduce this tax, a common strategy is to create what’s known as an irrevocable life insurance trust (ILIT). 

An ILIT is a type of trust where the main asset is a life insurance policy. Because the policy is owned by the trust and not you (the grantor), it would not be counted towards your gross estate when you pass. Therefore, it reduces the amount of estate taxes that would normally be owed.

Also, because the trust is irrevocable, any assets you transfer to it will no longer belong to you. This can be useful as it reduces the growth of assets on your balance sheet. Plus, assets inside the trust will be protected from creditors which will help ensure they get distributed to your beneficiaries as intended.

Worried about Changes Within Estate Tax?

Individuals have expressed concern around the possibility of a reduction in estate tax exemptions given that we are in an election year and changes in estate taxes have been proposed as a measure to reduce the budget deficit. When we talk about reducing your estate there are three main ways to accomplish a reduction in your estate’s value. These are to spend more, give more, or through complex estate planning. The main goal with complex planning is to remove asset growth from your side of the balance sheet and move the growth to your beneficiaries. Spending more is doable but the reality is most people won’t feel comfortable to increase spending to an appropriate level that will accomplish a significant reduction. Giving more is doable if there is alignment between values and goals. Advance estate planning tends to be the most common answer, however it does add complexity and gets confusing quickly. At Client First Capital, we are uniquely positioned to provide an integrated estate planning service as we see all the pieces that need to be taken into account, such as investments, taxes, values, and family dynamics. Here are the two most commonly used strategies within estate planning.

The Importance of Working with a Professional

Estate planning, when done correctly, is a dynamic process given changing asset values and tax codes. To complement our estate planning services, Client First Capital is able to serve as a corporate trustee and provide additional comprehensive financial services such as bill pay, real estate services, and tax return preparation. If you’d like to know about your options for leaving a legacy, please feel free to connect with us by sending an email or filling out our contact form.

Related: Four Income Tax Strategies in Retirement