Estate planning is not a “one and done” endeavor if you want to effectively shape your legacy. The estate plan that you initially put in place will be based on your life situation and your financial position at that time, but the only constant is change.
Over the years, you may have additions and subtractions to the family, and this can trigger the need for an estate plan update. Unfortunately, a significant percentage of marriages end in divorce, and this is another major life event that will impact your existing plan.
Estate planning for blended families can be confusing for a layperson, and this is understandable. However, there are solutions that can be implemented to satisfy any objective, so you should explain your goals to an estate planning attorney and gain an understanding of your options.
For example, there is a legal device called a qualified terminable interest property (QTIP) trust that can be the ideal device for some parents that are getting remarried.
To provide a brief explanation, you would fund the trust and name a trustee to act as the administrator. Your new spouse would be the initial beneficiary, and your children would be the successor beneficiaries of the trust.
If you predecease your spouse, the trustee would distribute the trust’s earnings to your surviving spouse for the rest of their life. They can also use property that is technically owned by the trust.
After the death of your surviving spouse, your children would inherit the assets that remain in the qualified terminable interest property trust.
Speaking of successors, when you are developing your estate plan, you should add alternate beneficiaries to your individual retirement account, life insurance policies, and other accounts that have beneficiaries.
When you name an alternate, this individual would become the beneficiary if necessary, and a complicated situation would be avoided.
A lot of people think of an estate plan as something that will kick into gear after you are gone. In reality, you should take steps along the way to preserve your legacy for the benefit of your loved ones.
One source of asset erosion is the federal estate tax. It carries a 40 percent maximum rate, and it is applicable on the portion of an estate that exceeds the exclusion.
This year, the exclusion is $11.7 million, and it is at a record high. The exclusion that we have now is a result of a provision that is contained within the Tax Cuts and Jobs Act that was passed in 2017.
It is going to sunset at the end of 2025, and the exclusion is going down to $5.49 million dollars on January 1, 2026. When you consider the value of real estate in the Los Angeles area, this figure is not extraordinarily high.
Plus, the For the 99.5 Percent Act that has been introduced by Senator Bernie Sanders would reduce the exclusion to $3.5 million, and it would raise the rate to 45 percent for the first $10 million. The rate would top out at 65 percent for estates valued at more than $1 billion.
There are steps you can take to mitigate your estate tax burden, and this can become an issue for you if you enjoy financial success as the exclusion is reduced.
Nursing home costs are another threat to your legacy. Medicare does not pay for a stay in a nursing home, and you can expect to pay over $100,000 for a year in a nursing facility in our area.
Medi-Cal does cover long-term care, and you can potentially gain eligibility if you position your assets in the optimal manner at the right time. We can help you implement a nursing home asset protection strategy that will protect your legacy.
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Since this is an ongoing process, you should schedule periodic estate plan reviews to make sure that your existing estate plan reflects your current wishes. If you are ready to do just that, we are here to help, and we can work with you to devise an initial plan if you are currently unprepared.
You can schedule a consultation at our Los Angeles estate planning office if you call us at 310-337-7696, and you can fill out our contact form if you would rather send us a message.