Let’s say that you start talking to the person sitting next you on a flight, and you learn that they are an estate planning lawyer. They are willing to answer any questions that you have for the next couple of hours.
If you had this opportunity, you would come away with a new understanding of the process, so we are going to share a hypothetical version in this post.
When does estate planning become important?
You should have an estate plan as soon as you are a self-supporting adult. This being stated, if you have limited resources and you do not have anyone relying on you, it may not be a high priority on your to-do list.
This is understandable, but every young adult should have a basic plan in place. You should carry sufficient life insurance to cover your final expenses, and your plan should include a will or trust to arrange for the transfer of the assets that you do have in your possession.
Your plan should also include advance directives for health care. You can state your life support preferences in a living will, and you can empower a representative to make medical decisions on your behalf in a durable power of attorney for health care.
The Health Insurance Portability and Accountability Act (HIPAA) protects patient privacy, so you should include a HIPAA release to give your representative access to your medical records.
If you get married, estate planning takes on an added level of importance. You and your spouse could potentially create a joint living trust, and it would be quite useful when and if you have children.
The trustee that you name in the document would be able to manage assets on behalf of the minor child if the unthinkable takes place.
Can you revise a living trust?
Yes, you can change the terms at any time, and you can convey property into the trust after it has been initially funded. This is a revocable trust, so you could rescind the trust entirely if you ever choose to do so.
What are the advantages of a living trust aside from the minor child benefit?
You would act as the trustee while you are living, so you would have total control of the assets in the trust every step of the way. When you are drawing up the trust, you would name a successor trustee to assume the role after your passing.
This person or entity could also be given the power to administer the trust in the event of your incapacity, and this is an important consideration. Over 30 percent of the oldest old contract Alzheimer’s disease, and there are other underlying cause of cognitive impairment.
A will is admitted to probate after the death of the testator. This is a costly and time-consuming legal process that is a public proceeding, so the records are available to anyone that wants to access them.
When you have a living trust, the successor trustee would be able to distribute the assets to the beneficiaries outside of probate. You can provide incremental distributions over time to limit spending, and the principal would be protected from the beneficiary’s creditors.
Are inheritances subject to taxation?
An inheritance is not considered to be taxable income by the IRS or the state tax authorities. This would include distributions of the principal in a living trust, but distributions of the earnings would be taxable.
There is a federal estate tax, but there is an $11.7 million exclusion in 2021. This is the amount that can be transferred before the estate tax would be levied on the remainder.
Some states have state-level estate taxes, but we do not have an estate tax in California. However, if you own valuable property out of state, the estate tax in that state would apply if its value is greater than the exclusion in that state.
State-level exclusions can be relatively low. For example, the exclusion in Oregon is just $1 million.
Schedule a Consultation Today!
We are here to help if you are ready to have a real-life conversation with a Los Angeles estate planning lawyer. You can send us a message to set up a consultation appointment, and we can be reached by phone at 310-337-7696.
- What Does it Cost to Probate an Estate in California? - January 24, 2023
- What Is Missing in Your Estate Plan? - January 22, 2023
- Common Probate Mistakes and How to Avoid Making Them - January 19, 2023