A lot of people do not have estate plans in place because they simply do not know where to start or what to do. With this in mind, we are going to share some steps that you can follow to create a framework.
Inventory Your Assets
The first order of business will be an asset inventory because you have to identify what you expect to be able to pass along to your loved ones. This would include family heirlooms and other personal possessions that are meaningful to you.
Another element that you should keep in mind when you are tallying up the value of your assets is the potential for estate tax exposure. The federal estate tax carries a 40 percent rate, so it can have a significant impact on your family’s future.
The majority of Americans do not have to be concerned about this tax because there is an $11.7 million exclusion. This is the amount that can be transferred tax-free, and the remainder would be subject to the tax.
This figure is going to remain in place indexed for inflation through 2025, but on January 1, 2026, it is scheduled to be reduced to $5.49 million. In Vermont, we have a state-level estate tax with an exclusion of $5 million.
Evaluate the Impact of Income Loss
You should have an estate plan in place as soon as you are a self-supporting adult, and it becomes essential when you have people relying on you. If you are putting your plan in place when you have dependents in the home, you should evaluate your family’s financial need.
Life insurance can be used as an income replacement vehicle, and you should empower an adult to manage assets on behalf of the child. This can be done through the utilization of a living trust or a testamentary trust, which is a trust that is embedded in a simple will.
Even if you have a trust, you should name a guardian for dependent children in a will.
Look Past a Simple Will
Far too many people oversimplify the estate planning process. They think that you execute a simple will and you are good to go, but in fact, there are other options.
When a will is used, it is admitted to probate, which is a costly and time-consuming legal process. There is also a loss of privacy, because the records are available to the general public.
Plus, the executor will distribute assets to the beneficiaries in lump sums with no asset protection or spending safeguards.
If you were to use a living trust as your asset transfer vehicle, you would be the trustee while you are living, so you would not lose control of the resources. After your death, the trustee that you named to succeed you would distribute the assets to the beneficiaries outside of probate.
In addition to the probate avoidance benefit, you can include a spendthrift clause, and the principal would be protected from the beneficiaries’ creditors. With regard to spending guardrails, you could instruct the trustee to provide limited incremental distributions.
This is one type of trust, and it is widely utilized, but there are other possibilities that you should explore before you make any decisions.
Confront the Possibility of Cognitive Impairment
No one wants to think about the possibility of contracting Alzheimer’s disease, but the cold hard truth is attention-getting when you know the facts. According to the Alzheimer’s Association, 32 percent of elders that are 85 years of age and older are Alzheimer’s sufferers.
That is a significant number, and your life expectancy is 85 years if you are a 67-year-old man, and it is 87 years for a woman that is celebrating her 67th birthday. This is not the only cause of cognitive difficulties, so you should address this reality when you are planning your estate.
If you have a living trust, you can name a disability trustee to administer the trust in the event of your incapacity. A durable power of attorney for property can be used to name a financial representative if you do not have a trust.
Even if you are going to use a revocable living trust as your estate plan centerpiece, you should have a durable power of attorney for property to account for property that was never conveyed into it.
Advance directives for health care should be part of the plan as well. A living will is used to state your life support preferences, and you can name an agent to make medical decisions on your behalf that are not related to life-support utilization in another durable power of attorney.
Engage an Estate Planning Lawyer!
When you have a general idea about the way you want to proceed, it is time to work with a Burlington, VT estate planning lawyer to execute the plan. If you are ready to do just that, you can call us at 802-879-7133 to schedule a consultation appointment.
There is also a contact form on this site you can fill out if you would rather send us a message, and if you reach out in this manner, you will receive a prompt response.