There is some misinformation that circulates about certain aspects of the estate planning process. People sometimes make costly errors because they buy into myths, and with this in mind, we will look at some of these commonly held misconceptions in this post.
Estate planning is not necessary until you are a senior citizen.
Obviously, most people do not pass away when they are under the age of 60, but it does happen each and every day. When you are a single adult with no responsibilities to anyone else, you are not putting another person at risk if you do not have an estate plan.
However, when you have a spouse or partner that is depending on you, estate planning becomes an absolute must, and the stakes get higher if you have children.
Estate planning for a young family will include life insurance and a plan for the well-being of the children. You should name a guardian in a simple will, and you should have a testamentary trust or a living trust to designate a trustee to manage assets on behalf of the minor.
Your estate plan should also include advance directives for health care. A living will is used to state your life support preferences, and you can record your organ and tissue donation choices as well.
To address medical matters that are not related to the use of life-support, you can name a representative in a durable power of attorney for health care. A HIPAA release should be added to give the representative the ability to access your medical records.
Estates are not subject to taxation.
A lot of misconceptions are based on some kernel of truth, but it gets twisted as the facts get passed along the line. An inheritance is not subject to regular income taxes, and this would apply to direct bequests along with life insurance proceeds.
However, this does not mean that taxation can never enter the picture when an estate is changing hands. There is a federal estate tax, and there is also in Vermont state estate tax.
The exclusion is an amount that can be transferred tax-free before the estate tax would potentially be levied on the remainder. On the federal level, the exclusion is $11.7 million this year, but it is scheduled go down to $5.49 million in the beginning of 2026.
Vermont’s estate tax exclusion is $5 million in 2021. If your estate is going to be exposed to taxation, there are steps you can take to ease the burden.
DIY estate planning is simple and effective.
You can buy downloads and worksheets on the internet that can be used to create legal documents, including wills and trusts. While it is technically possible to create a legally binding device using these tools, you should definitely take pause before you embrace DIY planning.
When you are planning your estate, you are facilitating the transfer of everything you own to the people you love the most. This is a very profound endeavor, and it should not be taken lightly.
As a layperson, you are not going to understand the intricacies of state laws, and you would not be aware of all the different asset transfer methods that are available. Do-it-yourself projects can be fruitful, but you have to know where to draw the line.
Medicare will take care of all your health care expenses when you are a senior.
Estate planning involves the facilitation of asset transfers, but a properly constructed plan will have a protective element. If you spent a huge amount of money toward the end of your life on health care related expenses, your legacy is definitely going to be impacted.
Medicare does not pay for everything in full, and it does not cover custodial care at all. If you ultimately reside in a nursing home, Medicare will not pay the bills.
Medicaid will cover long-term custodial care, but you cannot qualify if you have significant assets in your name. It is possible to fund an irrevocable trust to develop the right financial profile, but you have to act at least five years before you apply for Medicaid coverage.
We Are Here to Help!
If you are ready to work with a Burlington, Vermont estate planning attorney to put a solid estate plan in place, our doors are open. You can send us a message to request a consultation appointment, and we can be reached by phone at 802-879-7133.
- These Estate Planning Myths Can Lead You in the Wrong Direction - September 9, 2021
- Vacation Home Owners: Be Aware of Ancillary Probate - September 2, 2021
- It’s Important to Have a Coordinated Estate Plan - August 31, 2021