People all too often put estate planning on the back burner because they view it as some type of huge, complicated endeavor that seems intimidating.
It is true that arranging for the transfer of everything that you have accumulated throughout your life to the people that you love the most is a profound action. However, when you understand the basic structure, this seemingly gargantuan proposition shrinks down to size.
With this in mind, let’s look at the basic framework of a typical estate plan.
Clearly, the facilitation of postmortem asset transfers is at the core of the estate planning process. Taxation is an issue that many people are concerned about, but surprisingly, the news is rather good when it comes to passing along inheritances.
Bequests are not looked upon as taxable income by the IRS or the state, and this is one major positive. Plus, if you inherit appreciated assets, you get a step up in basis. This means that you do not have to pay capital gains taxes on appreciation that took place during the life of the person that left you the resources.
There is an estate tax in the United States, but it is unlikely that your family will be exposed to it, because there is a relatively high credit or exclusion. The exclusion is the amount that can be transferred before the estate tax would be applied.
At the time of this writing in 2019, the exclusion is $11.4 million. There are inflation adjustments added annually, so you will see a slightly higher figure next year.
You cannot simply give large gifts to sidestep the estate tax, because there is also a gift tax. This exclusion is a unified exclusion that encompasses your estate and gifts that you give throughout your life. There are more details to understand about the gift tax, but we will share them in a different blog post.
People that are exposed to the estate tax implement rather complicated tax efficiency strategies that will typically include the utilization of irrevocable trusts. This being stated, there is another type of trust that is ideal for a wide range of people that are not extremely wealthy.
A revocable living trust is a very good alternative to a last will for a number of different reasons. This is one trust that can be optimal for many families, but there are other possibilities.
There is no cookie-cutter, one-size-fits-all estate plan, and this is why it is important to discuss your unique personal situation with a licensed attorney.
A well-constructed estate plan should address the eventualities that you may face toward the very end of your life. Incapacity is not a pleasant prospect, but it strikes a significant percentage of elders. If you plan ahead in advance, you can prevent a guardianship proceeding.
If you were to establish a living trust, you would act as the trustee while you are alive and well. To account for incapacity, you could name a disability trustee to assume this role if it ever becomes necessary. For the management of assets that are not in the trust, you could execute a durable power of attorney for property.
Another incapacity planning device is a living will, which is a document that is utilized to state your life-support preferences. For decision-making that does not involve life-support, you can add a durable power of attorney for health care.
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