A significant percentage of the unprepared respondents thought it was important, but they were frozen with inaction because they didn’t know where to begin.
If you fit into this category, answer these four simple questions and your estate plan will start to take shape. When you know what you want to accomplish, you can work with us to develop a plan that is custom crafted to suit your needs.
Are you comfortable leaving lump sum inheritances with no strings attached?
The first order of business is to decide if you feel confident leaving your loved ones their inheritances all at once with no safeguards. If you have concerns, you may want to use a revocable living trust with a spendthrift provision.
While you are living, you would act as the trustee, so you would maintain control of the assets. You would name a successor trustee to assume the role after your passing.
After your death, the trust would become irrevocable, and the principal would be protected from creditors. You could instruct the trustee to distribute a certain amount each month over an extended period of time to prevent reckless spending.
Another option is an incentive trust. With this type of trust, you include incentives that must be met before assets will be distributed to the beneficiary. For example, you could encourage someone to finish college and develop a work ethic after graduation.
If you do not have any reservations about lump sum inheritances, you can still use a revocable living trust. This would be a better choice than a simple will, because a will would be admitted to the costly and time-consuming process of probate.
Transfers that are facilitated through the terms of a living trust are not subject to probate.
Will your estate be subject to taxation?
Direct inheritances that are received through the terms of a will are not subject to regular income taxes, and this would include life insurance proceeds. Distributions of the principal in a living trust are not taxable, but you have to report distributions of the earnings.
Beneficiaries of traditional individual retirement accounts pay taxes on the distributions, and Roth account beneficiaries receive tax-free distributions.
Inherited appreciated assets get a stepped-up basis. From a capital gains tax perspective, an inheritor would not be responsible for gains that accumulated during the life of the decedent.
All of the above is the good news, but there is some bad news for high net worth individuals. There is a federal estate tax that carries a 40 percent rate, and it is applicable on the portion of an estate that exceeds $11.7 million in value.
This figure is called the credit or exclusion. In New York, we have state-level estate tax, and the exclusion is $5.93 million in 2021. If your estate will be subject to taxation, we can help you implement a tax efficiency strategy.
Have you considered long-term care expenses?
There is no reason to worry about your estate plan if there is nothing left to pass along to your loved ones. This type of situation can arise if you do not consider the potential impact of nursing home costs.
You can expect to pay $170,000 or more for a year in a nursing home in the Rochester area, and the costs may be considerably higher if you need the care 20 years from now. A married couple may face two different rounds of nursing home bills, so the expenses can be devastating.
Medicare does not pay for long-term care, but Medicaid will cover the cost if you can gain eligibility. Even though it is a need-based program, it is possible to develop a financial profile that will lead to eligibility if you take the right steps at the right times.
Are you prepared for incapacity?
Over 30 percent of the oldest old contract Alzheimer’s disease, and this is not the only underlying cause of incapacity. You should account for this possibility 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. For property that is not held by a trust, you can name a representative in a durable power of attorney for property.
Your incapacity plan should include a living will to state your life support preferences. A durable power of attorney for health care or health care proxy can be added to name someone to make medical decisions on your behalf that are not related to the use of life-support.
Schedule a Consultation Today!
We are here to help if you are ready to work with a Rochester, New York estate planning attorney to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at (585) 374-5210.