We always emphasize the importance of personalized attention, because there is no one-size-fits-all, cookie-cutter estate plan that is right for everyone. This being stated, there is a basic framework that is somewhat universal, and we will look at it here.
Vehicle of Asset Transfer
When plan your estate, you must use a legal device to state your final wishes with regard to the way your assets will be distributed after you are gone. Many people think about estate planning and asset transfers and they reduce it to the creation of a last will. Of course, you can use a will, but there are alternatives that are better for many people.
A revocable living trust is a very useful tool, and the device provides advantages over a last will. One of them is the fact that you can include spendthrift protections. It would be possible to instruct the trustee to distribute only the earnings from the trust to the beneficiary to prolong its viability.
If you choose to do so, you could allow for distributions of the principal when the beneficiary reaches certain age thresholds.
Estate administration can be a somewhat complex task. When you have a living trust in place, the assets would be consolidated in one place, and this makes things easier for the administrator. A living trust can also be used to create a dual estate plan for a husband and wife.
There are other types of trusts that can be utilized to satisfy more complex objectives. For example, if you have a loved one with a disability, a direct inheritance through the terms of a last will could cause a loss of need-based government benefit eligibility.
To account for this, you can establish a supplemental needs trust. The trustee would be able to use assets in the trust to satisfy the beneficiary’s unmet needs, and eligibility for benefits like Medicaid and Supplemental Security Income would remain intact.
High net worth individuals must take steps to gain estate tax efficiency. Most people are not exposed, because there is a relatively high exclusion that stands at $11.18 million right now. This is the amount that can be transferred before the estate tax would be applied.
The tax carries a maximum rate of 40 percent, so we are talking about a significant level of asset erosion. When you convey resources into an irrevocable trust, they are no longer part of your estate for tax purposes. Some complex trusts can facilitate asset transfers at a tax discount.
These are a handful of different scenarios that can exist, but there are others. There are many tools in the estate planning toolkit, and we can recommend the right choice to you when we understand your situation.
Nursing Home Asset Protection
The majority of senior citizens will need long-term care eventually, and many will reside in nursing homes. Medicare will not pay for a stay in a nursing home or assisted living community, and it will not pay for in-home care delivered by a home health aide or skilled nurse.
Nursing homes are extremely expensive, and in-home care and assisted living communities are also costly. To protect your assets for the benefit of your loved ones, you could implement a Medicaid eligibility strategy. This program will pay for long-term care, but you have to divest yourself of assets at the right time to qualify without losing anything in the process.
Unfortunately, a very significant percentage of people become unable to make their own sound decisions at some point in time. There are a number of different causes of incapacity, but Alzheimer’s disease is at the top of the list. If you do nothing to prepare for this eventuality, the state could step in to appoint a guardian to manage your affairs.
You can prevent a guardianship and choose your own decision-makers through the creation of durable powers of attorney. With a durable power of attorney for health care, you name a medical decision maker, you could add a durable financial power of attorney.
Another document that should be part of your incapacity plan is a living will. With this advance directive for health care, you state your wishes regarding the utilization of feeding tubes, artificial hydration, artificial respiration, and other life-sustaining measures.
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We are offering a free worksheet right now that you can utilize to gain an understanding of where you stand from an estate planning perspective. To gain access to your copy, visit this page and follow the simple instructions to access the download.