ESTATE PLANNING, FINANCIAL LITERACY
Protecting Your Assets from Probate
Joseph A. Davis, CDFA®
April 18, 2016
When Elvis Presley died, his estate was worth more than $10 million dollars1. Then it went through probate. After appraisal costs, legal fees, executor’s fees and estate taxes, “The King’s” estate was reduced to $3 million.2 Because of improper estate planning, a whopping 73 percent of Elvis’ estate was wiped out. So what did all that money pay for? And how can you avoid some of the same mistakes? Let’s find out.
Probate is the (usually lengthy) process of proving a will is valid, clearing your estate of any debt and making sure no one challenges it. All of this takes place in court, which adds to the costliness.
But there are ways to reduce or eliminate costs associated with the complicated legal process. One of the most efficient includes establishing a trust. Assets and property within a properly drafted trust don’t have to pass through probate. On top of that, assets are passed on relatively quickly following death, especially when compared with probate. In addition, assets potentially have more protection from creditors when placed in a trust.
Trusts aren’t your only option. If you choose not to establish a trust, there are several ways you can reduce costs. If you have a 401(k), an IRA, a life insurance policy or all three, you have three separate beneficiaries to name. By routinely updating your beneficiary designation, you avoid unwanted inheritances and ensure your wishes are carried out. Assets that pass through beneficiary designations typically aren’t subject to probate, which makes their accuracy even more crucial.
You can also choose to own assets jointly with someone else. Jointly owned property, from stocks to houses, may be passed onto the survivor automatically. Many brokerage houses and banks also allow you to name a beneficiary on your personal accounts by establishing a TOD (Transfer on Death) account. It’s one more way to ensure your assets pass relatively quickly and easily to whomever you wish. Upon death, your accounts and their contents will be passed to whomever you’ve named.
One other option is to gift your assets to family or friends before you pass away. By gifting the maximum tax-free amount each year ($14,000 in 2016), you reduce the amount of your estate, which, in turn usually reduces the amount of probate costs since they are generally based on the total estate value. Gifts may be subject to a “look-back” period, so consult with your tax and estate professionals.
By properly planning your estate with a financial professional and an estate planning attorney, you may be able to decrease probate costs and avoid costly mistakes. Not many people like to discuss their own mortality. But the thought of family, friends or a charity losing large percentages of their inheritance to costs, fees and taxes should encourage anyone to start planning.
While Elvis’ estate may have been improperly managed early on, it has become a major success story since being bought out by his former wife, Priscilla, and their daughter, Lisa Marie. With proper management, it grew from a paltry $3 million to more than $300 million today, with 85 percent ownership under Authentic Brands Group and the other 15 percent with Lisa Marie.3
The lesson to be learned lies in the stark contrast between proper and improper estate management, and shows how important an estate plan is, whether you’re “the King,” or not.
Written by Securities America for distribution by Joseph A. Davis, CDFA®
1. Back Room Technician, “Estates of Famous People” chart
2. Stevens, Sue. June 30, 2005. Avoid the Estate Planning Blunders of Marilyn and Elvis. Morningstar.com
3. Yan, Sophia. Nov. 20, 2013. “Sold! Elvis Presley Inc. has a new owner” http://money.cnn.com/2013/11/20/news/elvis-property/; and Celebrity Net Worth: http://www.celebritynetworth.com/richest-celebrities/singers/elvis-net-worth/
Throughout the past two and a half months I have continued to ask myself, did we jump off a financial cliff? The answer was no. How did I know? The answer, while somewhat complex, is profoundly simple.
While it’s true that retirement accounts can be used to save for college, there may be negative consequences to doing so. It’s best to talk with a financial professional to determine the appropriate course of action and to make sure you’re on track to meet your goals.
A 401(k) isn’t the only option for retirement, but it’s definitely one of the most attractive. In many cases, it offers free money and is relatively easy to roll over when you change jobs. A financial professional can help you prepare for retirement with a 401(k) that fits your current investment style and stage in life and adapts to changes in career or investment styles.
Qualified plans, such as 401(k), profit sharing, defined benefit pension and money purchase pension plans, have defined benefits or defined contributions. A qualified domestic relations order, or QDRO, is required when dividing qualified plans.
Davis Financial LLC
A financial services firm servicing clients across Utah. We strive to understand your goals, help you manage your retirement planning, guide your overall wealth strategy and help minimize your tax liability through a long-term and trustworthy relationship.
Office Hours: M-F, 9am-5pm
Call Us: (801) 620-0586
Directions: Map It
This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed.
Securities offered through Purshe Kaplan Sterling Investments, Member FINRA & SIPC., Headquartered at 80 State Street, Albany, NY 12207. Advisory Services offered through BEAM Wealth Advisors, Inc., a SEC Registered Investment Advisory Firm. BEAM Wealth Advisors, Inc. is a separate entity from Purshe Kaplan Sterling Investments. Joseph Davis, Registered Representative. Tax services provided by Davis Tax & Associates. Advisory services offered by Beam Asset Management. Joseph Davis, Investment Advisor Representative. Davis Financial LLC, Beam Asset Management, Davis Tax & Associates, and Purshe Kaplan Sterling Investments are separate, unaffiliated entities.