Studies that are conducted show that the vast majority of American adults do not have any estate planning documents in place. Since so many people are unprepared, even many older individuals, when they finally take action they do so in a haphazard manner. Many of them fill in the blanks on do-it-yourself last will templates that they find online and they call it a day.
Responsible people should certainly go in a much different direction. There are many tools in the estate planning toolkit, and the right choices will depend upon the circumstances. We are not going to present countless scenarios here, but we are going to share three basic components that should be included in all estate plans.
Obviously, you have to arrange for asset transfers when you plan your estate. Before you decide that a last will is the right choice, you should understand some of the facts. When a last will is utilized, it must be admitted to probate by the executor. This is a costly and time-consuming legal process, and there is a loss of privacy, because probate records are available to the general public.
Another thing about a last will that can be problematic is the fact that you would be allowing for lump sum inheritance distributions to the heirs. If you want to leave a bequest to someone that has poor money management skills, this may be a source of concern.
You can overcome these drawbacks through the utilization of a living trust. With this type of trust, you would act as the trustee and the beneficiary initially, so you would not surrender control of the resources. In the trust declaration, you could instruct the trustee to provide limited distributions to the spendthrift heir incrementally. Plus, the probate process would not be a factor when a living trust has been established.
There are other types of trusts that can be used to satisfy more complicated aims. We will look at them in future blog posts.
Nursing Home Asset Protection
This sounds a bit flippant, but to be blunt, you don’t have to worry too much about estate planning if you have nothing to leave behind to your loved ones. With this in mind, you should certainly educate yourself with regard to long-term care and the costs that go along with it.
According to a government agency, seven out of every 10 seniors will eventually need living assistance. A significant percentage of them will ultimately reside in nursing homes. Medicare will not pay for a stay in a nursing home, and the costs are exorbitant. You can expect to pay somewhere in the vicinity of $100,000 for a year a nursing home in our area.
If you are married, your family may face two different rounds of nursing home expenses. Depending on the extent of your resources, everything that you intended to leave to your loved ones could wind up in the coffers of nursing homes.
Fortunately, there is a solution if you plan ahead effectively. Medicaid will pay for long-term care, but you can’t qualify if you have significant assets in your own name. You could give assets to loved ones, but the timing must be perfect, because there is a five year look back period.
If you give away assets within five years of the date of your application submission, your eligibility is delayed. To explain the duration of the penalty, if you gave away enough to pay for two years of long-term care, your eligibility would be delayed by two years.
Many elders become unable to communicate sound decisions at some point in time. To account for this, you should include an incapacity planning component within your broader estate plan. One document that should be executed is a living will. With this type of will, you state your preferences with regard to the utilization of life-sustaining measures.
This is an advance directive for health care, and another directive that should be included is a durable power of attorney for health care. You name an agent in this document that would be empowered to make medical decisions on your behalf in the event of your incapacitation. These would be matters that are not related to life-support.
The third incapacity planning document that should be added is a durable power of attorney for health care. In this document, you name a representative to handle your financial affairs.
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