The most common estate planning mistake is the idea that a simple will is the only document you need. In fact, a properly constructed estate plan should address some issues that may arise toward the end of your life. Plus, a will is not always the best asset transfer vehicle.
You should see a broader picture and understand all of your options. This is the primary reason why you should work with an estate planning lawyer to put a plan in place.
Why Limit Yourself?
If you use a will as the centerpiece of your estate plan, the assets will be distributed after the estate has been probated. That’s the end of the story, so all of the assets will be in the hands of the inheritors, and there will be no spending safeguards going forward.
This can be suitable if everyone that will be receiving inheritance is ready to handle the resources effectively. However, many people are not good with money, and there are others that simply do not have any experience. You will not be around to provide added support if mistakes are made.
Fortunately, you do not have to settle for this arrangement and hope for the best. You can use a revocable living trust instead, and you can set the terms of the distributions. The principal would be protected from the beneficiary’s creditors as well, so there would be total protection.
You don’t have to worry about surrendering control of your assets while you are living because you would have access to them every step of the way. While you are alive and well, you would be the trustee, and you would name a successor to fill the role after your passing.
Another benefit is the avoidance of the legal process of probate. Inheritors that are named in a will do not receive their inheritances until the estate has been probated by the court, and it will take about six months at minimum.
Probate records can be accessed by anyone that goes through the right channels, so there is a loss of privacy. The expenses that accumulate reduce the value of the estate, so there are some very good reasons to use a living trust to avoid this process.
If you are a parent and you get remarried after you have accumulated significant resources, you are taking a risk if you leave everything to your new spouse in a will. This is especially true if you are married to someone that is younger.
You never know what the future holds, and you cannot be sure that your spouse would take care of your children in accordance with your wishes. Under these circumstances, you can utilize a qualified terminable interest property trust.
Your spouse would be the first beneficiary, and your children would be the successor beneficiaries. If you die first, the trustee that you name in the document would distribute the trust’s earnings to your spouse for the rest of their life.
They could also use property that is held by the trust, so you could convey your home into the trust, and they could continue to live in it. If you choose to do so, you can give the trustee the latitude to distribute some of the principal when certain circumstances exist.
Your surviving spouse would not be able to alter the terms of the trust in any way. After their death, your children would inherit the assets that remain in the trust.
Estate Tax Efficiency
There are a lot of wealthy people in the Hilton Head area, and the federal estate tax looms large for high-net-worth individuals. It carries a 40 percent maximum rate that can put a major dent in your legacy, but there is a significant exclusion at the present time.
In 2022, the exclusion is $12.06 million, so you can transfer this amount tax-free before the estate tax would be imposed on the remainder. This figure is going down to $5.49 million indexed for inflation in 2026, so this is something to take into consideration.
Irrevocable trusts like the qualified personal residence trust, grantor retained annuity trust, generation-skipping trust, and charitable lead trust can be used to gain estate tax efficiency.
Schedule a Consultation Today!
These are some of the scenarios that can be addressed through the utilization of a trust, but there are others. If you are ready to work with a Hilton Head estate planning lawyer to develop a custom crafted plan, we are here to help.
You can fill out our contact form to make the initial connection, and we can be reached by phone at 843-815-8580.