A lot of people procrastinate before they put initial estate plans in place. Once they finally take action, they store the documents safely and assume that the responsibility has been taken care of once and for all.
In reality, this is a shortsighted approach that can yield negative consequences. Estate planning should be viewed as an ongoing process because circumstances will invariably change over the years.
Children and Changes in Marital Status
If you have an estate plan in place and you get married, your plan will need a major revision. It is possible to establish a joint living trust with your spouse, and you can have separate estate plans if you choose to do so.
When children come along, additional changes will be necessary. You have to designate a guardian that would to care for the children if it ever becomes necessary. There is also the matter of the management of assets on behalf of a minor child.
You can use a revocable living trust to accomplish this objective, because the trustee would administer the trust on behalf of the minor beneficiary. A testamentary trust, which is a trust contained within a will, is another option.
The qualified terminable interest property (QTIP) trust is a very useful tool for some parents that are getting remarried. It can be ideal if you are a high net worth individual that is getting married to someone that is considerably younger than you are.
To implement this approach, you establish and fund the trust and you designate a trustee to act as the administrator. You would make your spouse the initial beneficiary of the trust, and your children would be the final beneficiaries.
If you do in fact die first, the trustee would distribute the trust’s earnings to your spouse for the rest of their life, and you could give the trustee the latitude to distribute portions of the principal.
Your spouse could also use property that is held by the trust. For example, they can live in a home that is actually owned by the trust. They would be comfortable financially, but they would have no ability to change the terms of the trust.
After their passing, your children would become the beneficiaries of the trust. This demonstrates the fact that there is always an ideal solution that can be implemented if you work with an estate planning attorney to develop a personalized plan.
Legacy Preservation
Your financial situation can change over the years, and the tax code can also be altered via legislative mandate. With this in mind, you could face estate tax exposure at some point in time, and this would make an estate plan revision necessary.
The federal estate tax can be levied on the portion of an estate that exceeds $11.7 million. This is the exclusion in 2021, but it is going down to $5.49 million in 2026. It could potentially be reduced to $3.5 million if the For the 99.5 Percent Act is enacted.
Here in Vermont, we have a state-level estate tax with a $5 million exclusion and a 16 percent flat rate. It is possible to implement an estate tax efficiency strategy if your estate is going to be exposed to taxation.
Nursing home costs are another threat to your legacy. Medicare does not pay for nursing home care, and more than one third of seniors will eventually reside in nursing facilities.
Medicaid is the widely embraced solution, but it is a need-based program, so you have to divest yourself of assets to gain eligibility. We can gain an understanding of your position and help you take the right steps to live comfortably as you preserve a maximum store of resources.
Attend a Free Webinar!
Our attorneys are conducting a number of webinars over the coming weeks, and you will come away with some very useful knowledge if you join us. There is no charge, so this is a great way to invest a little bit of spare time.
You can see the dates if you visit our Essex Junction, Vermont estate planning webinar page, and when you identify the session that works for you, follow the instructions to register.
- Vermont Caregiver Resources - December 7, 2023
- Medicaid Planning - August 31, 2023
- 5 Essential Estate Plan Components - August 22, 2023
