Have you spoken with your financial planner lately? Or the person who sold you a life insurance policy? Your CPA? Certainly, it makes sense for an estate planner to tell you that you need an estate plan, but other trusted advisors would also agree that an estate plan is worth considering. “But I’m not rich. I don’t have an ESTATE to plan!” you say. Truthfully, an estate plan is of great value and benefit to the majority of people, regardless of wealth or age.
Estate planning may serve the following purposes:
- Avoiding a Death Tax
- Avoiding Probate
- Nominating Guardians for Minor Children
- Avoiding Conservatorship
- Planning for End of Life Medical Care
Avoid a Death Tax: The details of tax laws change on a whim of Congress, but whether a death tax is imposed has not changed for nearly a century. The estate tax rate is currently 40% imposed on assets that exceed the estate tax exemption (currently $11.7 million per person, i.e., $23.4 million per couple). The rate and exemption amount change with every administration. Estate planning techniques may be employed to reduce taxes imposed on your estate.
Avoid Probate: Probate is a court-supervised process of validating a deceased person’s will and transferring his or her assets to the beneficiaries. The process can be both expensive and time consuming. By transferring assets into a living trust, you may help your heirs avoid the headache of a prolonged probate process.
Nominate Guardians for Minor Children: Families with young children may be especially inclined to have their estate plan in place to nominate guardians for their minor children. By planning your estate, you have the power to nominate persons you trust to take care of your most precious earthly possessions – your children – in the event you and your spouse die while they are still minors.
Avoid Conservatorship: In a conservatorship, a court-appointed individual manages the personal care of someone who cannot properly provide for his or her own needs. Like probate, it is a cumbersome, time-consuming and expensive process that may be avoided with a proper estate plan. An estate plan that includes a durable power of attorney may avoid a conservatorship by appointing an agent to manage your financial affairs in case of your incapacity. As a result, financial issues that arise in such circumstances may be addressed in a timely fashion by a person you trust.
Plan for End of Life Medical Care: By setting up a Health Care Power of Attorney and Living Will as a part of your estate plan, you can designate an agent to make health care decisions on your behalf if you become incapable of making such decisions yourself. In addition, the Living Will may include your wishes regarding end-of-life care including life-sustaining treatment, instructions for organ donation and disposition of your remains. Such instructions will guide your agent when he or she steps in to make those decisions on your behalf.
As you can see, an estate plan can benefit more than just the wealthy. By planning ahead, you can ensure your involvement in some of the most important decisions affecting your family.
Trust administration is the process of carrying out the terms of your trust whether it is a simple living trust or a more complicated irrevocable life insurance trust (ILIT). A common myth in estate planning is the living trust myth – the idea that once a living trust has been created, its administration is simple and free of expenses. People who put a trust together often do so because they want to avoid a long and expensive process to settle affairs. Although a properly funded living trust should avoid probate, the carefully drafted terms of the living trust should still be carried out. In many cases, not much is required while the people who created the trust (i.e., the grantors) are alive. However, when one grantor passes away, the terms of the trust may require that the assets of the trust be divided for tax purposes. Failure to administer the trust at this point (e.g., when one spouse passes away) may result in the loss of certain tax exemptions.
In some cases, trust administration also ensures that assets of the first spouse to die will be set aside for his or her intended beneficiaries (rather than to his or her spouse’s future spouse or children). Without trust administration, the surviving spouse can benefit individuals that the deceased spouse did not intend to benefit.
Probate may be required for estates of individuals who did not have a trust or for assets that were not included in a living trust. The probate process requires the marshalling of the decedent’s assets, payment of debts and taxes, notification of beneficiaries and distribution of the estate to the persons entitled to receive the property.
Probate can be an expensive and long process. Fees are set by statute and can add up to 2-7% of the total estate value. Assuming no litigation, estates can be settled in about 9-18 months.
T. Chiu Law can assist clients through probate by acting as counsel to the survivors, determining the appropriate procedures to follow and carrying out such procedures.
Special (Supplemental) Needs Trust
If you have a child with a disability that qualifies him or her for public benefits like Supplemental Security Income (SSI), Medicaid, and/or subsidized housing, that child’s inheritance under traditional estate planning may disqualify him from those benefits. Instead, a Special Needs Trust (i.e., a Supplemental Needs Trust) can be incorporated into your estate plan to supplement, but not replace, any public benefits that your child receives. The Special Needs Trust can be customized to pay for items, services and equipment that Medicaid will not cover, such as the purchase of a home, special wheelchairs, handicap-accessible vans or mechanical beds. This special type of trust can be instrumental in enriching the life of your child after you are no longer here.