A lot of people that do not have estate plans in place say that they know they should take action, but they don’t know where to start. If you answer the questions in this post, an estate planning outline will start to take shape.
Do you have concerns about the money management capabilities of your heirs?
Asset distributions through the terms of a simple will would be provided in direct lump sums, and there would be no safeguards going forward. The inheritors would be in possession of the funds, and they would be free to spend them in a week if they choose to do so.
Some people are simply not ready to manage significant windfalls, and others have track records of poor money management. If you decide that you want to include guardrails, you can utilize a revocable living trust with a spendthrift provision.
You don’t have to worry about losing control of the assets yourself, because you would act as the trustee while you are living. When you draw up the trust, you name a successor trustee to act as the administrator after you are gone.
A spendthrift clause would be included, and the trust would become irrevocable after your death. The successor trustee would distribute assets to the beneficiaries in accordance with the terms that you establish when you create the trust.
If you want to prevent reckless spending, you can instruct the trustee to distribute limited assets on an incremental basis. Many people will allow for larger distributions when the beneficiaries reach certain age thresholds.
Will taxes be a source of concern?
For most people, taxes will not be much of a problem, but you should understand the facts. A direct inheritance through the terms of a will or an insurance policy are not subject to regular income taxes.
If you are the beneficiary of a living trust, distributions of the principal would not be taxable, but you would be required to report distributions of the earnings.
A Roth individual retirement account is funded after taxes have been paid on the income. As a result, distributions are not taxed, and this also applies to beneficiaries. With a traditional IRA, the tax sequence is reversed, so distributions to a beneficiary would be taxed.
Inherited assets get a step-up in basis, so the inheritor would not have to pay capital gains taxes on the appreciation that accumulated during the life of the person that left the inheritance.
We have a federal estate tax in the United States, and it carries a hefty 40 percent top rate. That’s the bad news, but the good news is that your estate is probably exempt, because the first $11.7 million can be transferred tax-free.
There are 12 states that have state-level estate taxes, but Ohio is not one of them. However, if you own property in a state with an estate tax, it would apply to your estate if its value exceeds the exclusion in that state.
Are you ready for long-term care costs?
The majority of seniors will need living assistance of some kind, and over 30 percent of elders will reside in nursing homes. These facilities are very expensive, and Medicare will not help with the costs.
Medicaid does cover long-term care, but you can’t qualify if you have significant assets in your name. You can convey assets into an irrevocable Medicaid trust to develop the right financial profile, but you have to fund the trust at least five years before you apply for Medicaid.
Have you considered the potential impact of incapacity?
This is a subject no one is anxious to think about, but cognitive impairment is relatively common among elders. If you do nothing to prepare for this eventuality, the state could appoint a guardian to manage your affairs.
In our state, a guardian makes personal decisions on behalf of a ward, and a conservator is a financial representative.
Most people would want to name their own representatives in advance, and you can do this if you execute durable powers of attorney for health care and financial decision-making. You can add a living will to state your life support preferences.
If you have a living trust, you can name a disability trustee that would assume the role if it ever becomes necessary.
Schedule a Consultation Right Now!
The last question is this: why take chances without an estate plan when qualified legal assistance is just a phone call away?
If you are ready to the stop procrastination and work with a Cincinnati estate planning lawyer to put a plan in place, give us a call at 513-721-1513. We also have a contact form on this site you can use if you would rather send us a message.