If you are going through life without an estate plan, you may feel as though it is not important because things will naturally fall into place. In reality, planning is a must for a number of different reasons, and we will share five of them in this post.
The condition of dying without any estate planning documents is called intestacy. Imagine the situation your loved ones would face if they find out that you died intestate while they are dealing with the emotional part of the equation.
Laypeople are simply not going to understand how to proceed at first, so there would be a sense of confusion. Ultimately, they would find out that the Surrogate’s Court will provide supervision during the probate process.
The court would appoint a personal representative, and the person that is chosen may not have the best interests of all family members at heart. For example, when the football star Steve McNair was killed, he did not have a will. His wife was named as the personal representative.
McNair was murdered by his mistress, and he had taken good care of his mother, Lucille, financially. He had a home built specifically for his mother on a 45 acre ranch, but she did not own it.
In her role as the personal representative, Steve McNair’s wife required Lucille to pay $3000 in monthly rent to remain in the property. She did not have the money, so she moved, and she took her belongings with her.
His mother was sued by the estate because his wife accused Lucille of stealing the items that she took from the home.
Granted, this is an extreme example, but situations can get complicated when someone dies intestate. There is no reason to take any chances when qualified estate planning assistance is just a phone call away.
The probate process that takes place under the supervision of the Surrogate’s Court would also be necessary if you have a will. It will typically take about eight months at minimum, and typically no inheritances are distributed while the estate is being probated by the court.
Probate expenses reduce the value of the estate before it is transferred to the heirs, and anyone that is interested can access the records, so there is a loss of privacy.
If you plan your estate in a fully informed manner, you can implement a probate avoidance strategy. Asset transfers that are facilitated through the terms of a revocable living trust are not subject to probate.
As you will see in the next section, this is just one of the advantages that living trusts provide.
Include Beneficiary Protections
Another reason why estate planning is important is because some of your heirs can be vulnerable in different ways. For example, if you want to include a minor child in your inheritance plan, you have to utilize a trust or a custodial account to empower an adult to manage the assets.
On another level, if you have a loved one in the family that is not good with money, you could can include spendthrift protections. You could make the person in question the beneficiary of a revocable living trust with a spendthrift provision.
The trust would become irrevocable after your death, and the beneficiary would not have direct access to the principal. Their creditors would be in the same position, so the assets would be protected, and you could arrange for the trustee to provide limited distributions over time.
Reduce Estate Tax Responsibilities
There is a federal estate tax that carries a 40 percent maximum rate, and there is an $11.7 million credit or exclusion. The exclusion is the amount that can be transferred before the tax would be applied on the remainder.
Here in New York, we have a state-level estate tax with a $5.93 million exclusion in 2021. If you are exposed to either or both of these taxes, you can implement an estate tax efficiency strategy to reduce the burden.
Nursing Home Asset Protection
Most senior citizens will need living assistance, and over 30 percent of elders will ultimately reside in nursing homes. Medicare will not pay for the custodial care that these facilities provide, and they are very expensive.
Medicaid is the widely embraced solution, but it is a need-based program, so you cannot qualify if you have significant assets in your name. You have to take measured steps well in advance to comfortably develop a financial profile that will lead to Medicaid eligibility.
We Are Here to Help!
Our doors are open if you are ready to work with a Rochester, New York estate planning lawyer to put a plan in place. You can schedule a consultation appointment if you call us at 585-374-5210, and you can use our contact form if you would rather send us a message.