Surveys have shown that the majority of people that don’t have estate plans think that it is important, but they procrastinate. One reason they give is the simple fact that they don’t know how to go about it, and this is understandable on the surface.
The first step is to pin down your objectives, and this can be done by asking yourself a series of questions. With this in mind, we will provide a list in this post to help you find a starting point.
Are you exposed to the estate tax?
There is a federal estate tax in the United States that can significantly impact your legacy, because it carries a robust 40 percent top rate. That’s the bad news, but the good news is that most people do not have to pay it because there is a high exclusion.
The exclusion is the amount that can be transferred before the tax would be levied on the remainder. In 2021, the federal estate tax exclusion is $11.7 million, and this is the highest exclusion that we have ever had.
This exclusion is in place because of a provision that is contained within the Tax Cuts and Jobs Act. It will expire or sunset at the end of 2025, and at that time, it will revert back to the $5.49 million that was in place in 2017.
You should keep this in mind if the value of your estate is between $5.49 million and $11.7 million. To take advantage of the high exclusion, you could give gifts or fund a trust while this window is open.
We should point out the fact that there is a federal gift tax, and it is unified with the estate tax. The exclusion is a unified exclusion that includes large lifetime gifts and the estate that will be transferred after you are gone.
Are you comfortable leaving lump sum inheritances to your heirs?
Some people are not very good with money, and there are those that are young and inexperienced when it comes to asset management. This can be a source of concern when you are planning your estate.
If you use a will to distribute lump sum inheritances, the inheritors could burn through their bequests too quickly and have nowhere to turn later on for financial assistance.
You can provide safeguards if you establish a revocable living trust with a spendthrift provision. While you are alive and well, you would act as the trustee, and you would name a successor to assume the role after your passing.
When the time comes, the trust would become irrevocable, and the principal would be protected from the beneficiary’s creditors. You could instruct the trustee to provide modest incremental distributions over time to prevent reckless spending.
Have you considered long-term care costs?
It is natural to evaluate expenses that you expect to incur when you are enjoying your active retirement years and plan accordingly. However, a lot of people do not factor in potential long-term care costs.
Most seniors will need living assistance, and over one third of American elders will ultimately reside in nursing homes. You are looking at over $100,000 for a year in a nursing facility, and Medicare will not cover the costs.
Medi-Cal does pay for custodial care, but you cannot qualify if you have significant assets in your name. It is possible to fund a trust to develop the right financial profile, but advance planning is key, and we can explain the details.
Have you taken steps prevent a conservatorship?
Many elders experience cognitive impairment late in their lives, and some seniors become unable to handle their affairs due to physical ailments. The state can be petitioned to appoint a conservator to act as a representative under these circumstances.
You can take the matter into your own hands if you proactively implement an incapacity plan. With a durable power of attorney for property, you can name someone to act for you in the event of your incapacity.
If you have a living trust, you can name a disability trustee to take on the role if it becomes necessary. You can add a living will to state your preferences with regard to the use of life-support, and you can name a medical decision-maker in a durable power of attorney for health care.
Schedule a Consultation Today!
We are here to help if you are ready to work with a Los Angeles estate planning attorney to develop a plan for aging that culminates in the suitable passing of your legacy.
You can schedule a consultation appointment if you call us at 310-337-7696, and you use our contact form if you would rather send us a message.
- Can I Decant a Trust in California? - December 6, 2022
- Common Mistakes in Estate Planning – Part V - December 5, 2022
- Planning for the International Client - December 5, 2022
