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17 May 2016

5 Estate Planning Strategies to Keep Your Money in the Family

If you’re single, you can have up to $5.45 million in assets before your heirs have to worry about paying a penny in estate taxes.

Knowing that, you might assume only the super wealthy need to worry about estate planning. However, financial planners say you’d be wrong to think planning is only necessary for the 1 percent.

“The bigger issue in estate planning for the majority of people is managing the step-up in basis on inherited assets and income taxes,” says Matt Anderson, a certified financial planner and vice president of The Wise Investor Group in Reston, Virginia.

The step-up in basis refers to how assets such as investment property and second homes are valued and taxed after a death and how taxes are levied against traditional IRAs and 401(k)s inherited by someone other than a spouse.

What’s more, states may want their piece of the pie. “If you’re just looking at the federal

[estate tax exemption] number, you might not realize your state has a lower limit,” says AJ Smith, managing editor of the finance site SmartAsset.com. New Jersey has the lowest exemption, with state estate taxes kicking in once assets exceed $675,000 per person – a number that’s not hard to reach for those who have been saving since early adulthood.

Meeting with an accountant and an estate attorney is the best way to sort through complex issues such as the step-up in basis for property. While you’re talking to the pros, ask them about the following five strategies.

Draw Up a Will 

It’s an obvious first step, but many people don’t even bother to draw up a will. In fact, a 2014 Rocket Lawyer survey of 2,048 adults found 64 percent of Americans don’t have a will. What’s more, 17 percent said they didn’t think they needed one.

However, without a will, your estate must be divided in probate court, a process that could leave your beneficiaries footing a big bill. “If your estate is not properly constructed, the only person that wins is the attorney,” says Sean P. Lee, co-founder of the financial education organization Retirement Elevated.

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