There’s an alphabet soup of estate planning strategies out there, from ILITs to CRTs to SLATs to GRATs, that create the impression that estate planning is complex, confusing, and time-consuming. Not surprisingly, clients are often overwhelmed by this perception and defer critical steps longer than necessary.
The reality, however, is that despite the many strategies available, most Americans don’t need more than a core set of estate planning documents. That is because the vast majority of Americans have relatively straightforward estates that don’t call for elaborate planning.
Here are a few reasons why most Americans’ estate plans don’t need to be complicated:
- They have relatively small estates. The federal estate tax applies only to estates that exceed a certain threshold, which, as of 2022, is about $12 million per person. This means that estates valued lower than this aren’t subject to federal estate tax. While some states have their own estate or inheritance taxes, many of those thresholds are still high enough that the majority of estates won’t be affected.
- They have straightforward family situations. In most cases, clients will want to leave everything to their spouse, and then to their children if their spouse precedes them in death. If they have minor children, they may also need to name a guardian for them, but this can usually be accomplished with a simple provision in their will.
- They have basic planning needs. The primary goals of estate planning are to ensure that the client’s assets are distributed according to their wishes and to minimize the amount of taxes and fees that their estate will owe. These goals can usually be accomplished with basic estate planning tools.
Of course, there are situations where more advanced estate planning strategies may be necessary. If a client has a large estate or a complex family situation, for example, they may need to use trusts, gifting strategies, or other techniques to minimize taxes and ensure that their assets are distributed appropriately. However, most Americans can rest assured that a simple estate plan that includes a will, a trust (if necessary), and basic beneficiary designations on retirement accounts and life insurance policies will be sufficient to accomplish their goals.