It can be hard to know how to enter the estate planning process, and many people procrastinate for this reason.
With this in mind, we will ask four questions in this post. When you answer them, you will find that your estate plan will start to shape.
Do you want to provide spendthrift protections for your heirs?
If you use a will to state your final wishes with regard to asset transfers, your loved ones will receive direct bequests all at once. There would be no spending safeguards going forward, and there would be no asset protection.
This can be a source of concern if you question the money management capabilities of your heirs. Under these circumstances, you could use a revocable living trust instead of a simple will.
You would act as the trustee while you are living, so you would not lose control of the assets. In the trust declaration, you would name a trustee to succeed you, and you would include a spendthrift provision.
After your death, the trust would become irrevocable, and the assets would be protected from the beneficiary’s creditors. You can determine the nature of the distributions when you establish the trust. Many people in this position will provide a certain amount each month.
Large lump sum distributions could begin when the beneficiaries reach certain ages. This is one possibility, but the choice would be yours, and this is one of the advantages that living trusts provide.
How will you pay for long-term care?
Your legacy can be severely damaged by long-term care costs, and most seniors will require living assistance. Medicare does not pay for custodial care, so this is not the solution.
Medicaid will cover a stay in a nursing home, but you cannot qualify if you have more than $2000 in countable assets in your name. As a response, you can convey assets into an irrevocable trust.
You would surrender access the principal, but you could receive distributions of the trust’s earnings. As long as you fund the trust at least five years before you apply for Medicaid coverage, the principal would not count.
Are you prepared for incapacity?
No one wants to think about this threat, but Alzheimer’s disease is looming. It strikes over 30 percent of people that are 85 years of age and older, and it is not the only cause of cognitive impairment.
In addition to this type incapacity, some people become unable to communicate sound decisions due to physical ailments. If you do nothing to prepare for these possibilities, the state could appoint a guardian to act on your behalf, you would become a ward.
You can proactively prevent a guardianship if you execute the right incapacity planning documents. If you have a living trust, you can name a disability trustee that would assume the role if it becomes necessary.
For the management of property that is not in a trust, you can create a durable power of attorney for property. You can add another durable power of attorney to name an agent to make medical decisions on your behalf.
Speaking of medical matters, your incapacity plan can include a living will. This type of will is used to state your life support preferences, and you can add organ and tissue donation choices.
Are you exposed to the federal estate tax?
For most people, the answer to this question will be no. However, if you have been financially successful, you should consider it. The federal estate tax carries a 40 percent rate, so it is a big deal if you are exposed.
There is a credit or exclusion that can be used to transfer a certain amount tax-free. In 2021, this amount is $11.7 million, but it is scheduled to go down to $5.49 million in 2026.
There is also a gift tax that is unified with the estate tax, so the exclusion applies to large lifetime gifts and the estate that will be transferred after your passing.
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We can build on the answers to these questions and give you a chance to ask your own when you work with us to put a plan in place.
If you are ready to get started, you can call us at 843-815-8580 to schedule a consultation, and you can use our contact form if you would rather send us a message.