A lot of people procrastinate when it comes to estate planning because it seems a bit overwhelming, and they don’t know how to begin. If you are one of them, you can start to build an estate plan framework if you consider the first four questions, and you will then be ready to act on the last one.
What is your family dynamic?
The nature of your original estate plan will be impacted by your family dynamic at the time. If you are single and you have limited resources and no children, your plan will be very simple.
On the other hand, if you are married, your estate plan takes on an added level of significance. This is magnified if you have children, and estate planning becomes an absolute must at that point.
Life insurance can serve as an income replacement vehicle, and you have to account for money management for a minor child. You can establish a living trust and make the trust the beneficiary of life insurance, and you name a trustee to administer the trust after your passing.
It is also possible to use a will with a testamentary trust, but a living trust is a more comprehensive, long-term solution. When you have a living trust, you will act as the trustee while you are living, and you can amend or restate the trust if revisions are needed.
The trust will address the financial part of the equation, but you cannot name a guardian for your children in a trust, so you should designate a guardian in a simple will.
If you are an older individual without an estate plan and you decide to take action, your family situation and your priorities will be different. There are solutions for blended families, and you can take steps to make sure that your children receive their inheritances if you get remarried.
Are there special considerations?
Many people with disabilities cannot get health insurance through employers because they are unable to work, and they do not have significant resources, so they qualify for Medicaid. Supplemental Security Income (SSI) is another need-based benefit that they rely on.
A direct inheritance could cause loss of eligibility because there is a $2000 asset limit. Under these circumstances, you can make a loved one with a disability the beneficiary of a supplemental needs trust.
They would have no access to the principal, but the trustee would be able to utilize the assets to improve their quality of life in many different ways.
You may be leaving an inheritance to someone that is not good with money, and you are concerned about reckless spending or bad investments. A revocable living trust with a spendthrift clause can provide a solution if you are in this position.
There are also incentive trusts that can be used to guide the beneficiary toward certain positive actions, and incentives can be used to steer them away from self-destructive tendencies. If you identify your concerns, we can explain your options with you come in for a consultation.
Will your estate be subject to estate taxes?
There is a federal estate tax, but it is not a factor for most people because it is only levied on the portion of an estate that exceeds the exclusion. It stands at $11.7 million at the time of this writing, but there is a bill in Congress that would reduce it to about $6 million next year.
Even if there are no legislative changes made in the near term, the exclusion is scheduled to go down to the 2017 level of $5.49 million indexed for inflation in 2026.
If taxation will be a factor, you have to implement an estate tax efficiency strategy.
Who will manage your affairs in the event of your incapacity?
Unfortunately, over 30 percent of people that are 85 years of age and older contract Alzheimer’s disease, and there are other causes of incapacity. You plan should address this possibility, and a durable power of attorney for property will be part of your incapacity plan.
This document is used to give someone the ability to manage your financial affairs. If you have a living trust, you can empower the successor trustee to fill the role if you become incapacitated.
A living will is an advance directive for health care that is used to state your life support preferences. You can add a durable power of attorney for health care to name someone to make medical decisions on your behalf that are not related to life support utilization.
You should also have a HIPAA release which will give the health care agent the legal right to review your medical records and speak freely with your doctors.
Are you ready to put a plan in place?
After you have considered these important questions, it is time to take the final step. You can schedule a consultation at our Essex Junction, VT estate planning office if you call us at 802-879-7133, and you can use our contact form to send us a message.