You may think that you can draw up a simple will when you are old and gray you will be all set from an estate planning standpoint. In fact, this is a shortsighted point of view, and we will look at some reasons why you may want to use a different asset transfer vehicle in this post.
Special Needs Planning
Everyone should have health insurance, but it is absolutely essential for individuals with disabilities. Unfortunately, many of these folks cannot work, so they do not get coverage through their employers.
Fortunately, there is a solution in the form of Medicaid eligibility. This program will provide health insurance for people with sparse monetary resources, and Supplemental Security Income (SSI) is a source of monthly cash for people with disabilities.
If you leave someone that is in this position a direct inheritance through the terms of a will, they would be in a different financial position. As a result, they could lose eligibility for these need-based government benefits.
To preserve Medicaid and SSI eligibility, you could make someone that is in this position the beneficiary of a supplemental needs trust. The trustee would manage the assets, and they would be able to use the resources to improve the beneficiary’s quality of life in many ways.
As long as no rules are violated, government benefit eligibility would not be impacted. If there is a remainder left in the trust after the death of the beneficiary, it would go to a successor beneficiary that you name in the trust declaration.
You probably want your loved ones to receive their inheritances shortly after your passing in a hassle-free manner. Unfortunately, there will be significant legal hurdles to cross if you use a will as your asset transfer vehicle.
A will is admitted to probate, and the Surrogate’s Court provides supervision during the estate administration process. It will usually take about eight or nine months at minimum, and the inheritors typically receive nothing while the estate is being probated.
There are a number of expenses that accumulate during this process, and these costs reduce the value of the estate. Another major negative is a loss of privacy because probate records are available to anyone that is interested.
You can proactively implement a probate avoidance strategy, and it will typically revolve around the use of a living trust. This would be a revocable trust, so you would be able to dissolve it if you ever choose to do so, and you would act as the trustee while you are living.
All the assets in the trust would be readily available to you, so nothing would change on that level. In the trust declaration, you would name a successor to assume the role after your death, and your heirs would be the beneficiaries.
When the time comes, the successor trustee would distribute assets to the beneficiaries in accordance with your wishes. The Surrogate’s Court would have no involvement at all, so the drawbacks we have described would be avoided.
Estate Tax Efficiency
There is a federal estate tax in the United States that carries a 40 percent maximum rate. It is applicable on the portion of an estate that exceeds $11.7 million. This figure is called the estate tax exclusion or credit, and there are annual increases to account for inflation.
Here in New York, we have a state-level estate tax with the $5.93 million exclusion during the current calendar year. If you use a will to transfer your assets and your estate is going to be exposed taxation, there would be no estate tax efficiency, and the hit would be a heavy one.
If you are in this position, you should consider the utilization of an irrevocable trust or multiple trusts. A family limited partnership can also facilitate tax efficient asset transfers.
Schedule a Consultation Today!
These are three of the reasons why you may want to use a trust instead of a will, but there are a number of others. There are many possible approaches that can be taken, so you should work with a Rochester estate planning attorney to become apprised of your options.
If you are ready to do just that, we are here to help. You can send us a message to schedule a consultation appointment, and we can be reached by phone at 585-374-5210.
- How Estate Planning for a Family May Trap the Unwary Practitioner - August 31, 2022
- State Income Taxation of Social Security Benefits - August 24, 2022
- Understanding Tax Apportionment Clauses - August 17, 2022