A lot of people think that estate planning is not really important because it is a simple matter of drawing up a will to express your inheritance decisions. You can look at it this way, but in fact, there are some good reasons why you should put some thought into your estate plan.
Prevent a Web of Confusion
If you were to pass away without an estate plan, your loved ones would be forced to deal with the emotional loss. To compound the situation, they would face logistic challenges with regard to the estate administration details.
Eternal optimists assume that everyone in the family will work together in lockstep under these circumstances, but in the real world, opinions can differ. The situation can become acrimonious, and this can make a bad situation worse.
Ultimately, the court may order the distribution of your assets in a way that is not consistent with what you would have wanted. You can prevent this outcome and take control of these events if you work with an attorney to put an estate plan in place.
You should carefully consider the money-management capabilities of the people that are on your inheritance list when you are planning your estate. Clearly, children cannot handle funds, so you have to make the appropriate provisions if you could be transferring assets to a minor.
A testamentary trust can be included within a will to accomplish this aim. The trust would not exist until you pass away. If the beneficiary is a minor at that time, the trustee that you name would manage the assets on behalf of the child until they are an adult.
An estate plan for the parents of minor children should also include the designation of a legal guardian. If there is no trust or custodial account, the guardian would manage the inheritance, and the guardian would also care for the child on a day-to-day basis.
It is also possible to include safeguards if you are going to leave an inheritance to an adult that is not good with money. A revocable living trust can be created with a spendthrift provision that would protect the principal from the beneficiary’s creditors
You could instruct the trustee to distribute limited assets on an ongoing basis, and larger portions could be provided when the beneficiaries reach certain age milestones.
If you are in a high-risk occupation, you have to be concerned about potential legal actions. There are steps you can take to protect your assets, and you have to be proactive, because you cannot reposition your assets once you know that a lawsuit is imminent.
In addition to this type of asset protection, you should also address future long-term care costs. Over one third of elders will require nursing home care, and Medicare does not pay for the custodial care they provide.
Medicaid will cover long-term care if you can gain eligibility, but you have to divest yourself of direct possession of assets at least five years before you apply for coverage.
If you use a will to direct asset transfers after you are gone, the inheritors would play a waiting game. The will would be admitted to probate, and the court would provide supervision during the estate administration process.
It will typically take close to a year at minimum for probate to run its course, and in addition to the time consumption, probate expenses consume a noticeable portion of the estate. On the other hand, if you use a living trust, assets will be distributed outside of probate.
Address Estate Taxes
We saved this one for last because most people do not have to worry about it, but it is a very big deal for those that do. The federal estate tax carries a 40 percent maximum rate, and it is applicable on transfers that exceed $11.7 million in value.
If your estate is in taxable territory, there are steps you can take to mitigate your exposure.
Schedule a Consultation Today!
We are here to help if you are ready to work with an El Segundo, California estate planning attorney to put an estate plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 310-337-7696.
- How Does a Testamentary Trust Work? - June 6, 2023
- How to Use Your Estate Plan to Protect Your Blended Family - June 2, 2023
- What Can I Do to Prevent Probate Disputes After I Am Gone? - June 1, 2023