A lot of people procrastinate when it comes to estate planning because they don’t know where to begin. In this post, we are going to share five questions you can ask yourself to provide a starting point as you enter into the estate planning process.
Are my heirs ready to handle their inheritances?
This is a foundational question that everyone should answer before they make any estate planning decisions. You do not have to use a will that allows for all of the assets to be distributed to the inheritors in lump sums.
You could alternately establish a revocable living trust with a spendthrift provision. The beneficiaries would not be able to access the principal, and their creditors would be the same position so the assets would be protected.
When you create the trust, you name a trustee to serve as the estate administrator. You can dictate the terms of the distributions that the trustee will make to the beneficiaries.
If you want to provide a limited amount every month for a prescribed period of time, you would have the ability to set the terms. This is just a single example, but you would have the power to set any terms that make you feel comfortable.
Will my estate be subject to taxation?
Most of the news about taxes on inheritances is good. A direct inheritance received through the terms of a will is not considered to be taxable income by the IRS or the state tax authorities.
Distributions of the principal in a living trust are not taxed, but the earnings are subject to taxation. The beneficiary of a Roth individual retirement account would receive distributions in a tax-free manner, but traditional IRA beneficiaries have to pay taxes when the distributions come out. The income on non-IRA annuities is also taxable.
Appreciated assets get a stepped-up basis at death. An inheritor would not be responsible for paying taxes on capital gains that accumulated during the life of the decedent.
There is a federal estate tax, but most people do not have to be concerned about it because there is currently an $11.7 million exclusion. This is the amount you can transfer before the estate tax would be applicable on the remainder. There are legislative proposals to reduce that exclusion amount so that could change.
Some states have state-level estate taxes. We have offices in North Carolina and Kentucky, and there are no state-level estate taxes in these states. However, if you own valuable property in a state with an estate tax, it could apply to your estate.
There are just six states that have inheritance taxes. This is a tax that can be levied on transfers to each individual nonexempt inheritor. Kentucky is one of the states, but a surviving spouse, parents, children, grandchildren, and siblings are exempt.
Should I address long-term care costs?
Most senior citizens will need some form of living assistance, and 35 percent of elders will require nursing home care. Long-term care is very expensive, and Medicare does not cover custodial care.
The costs could potentially consume a significant portion of the financial legacy that you want to pass along to your loved ones. Medicaid will cover long-term nursing home costs, and it is possible to use an irrevocable trust to protect assets while making it easier to qualify.
Who will act on my behalf if I become incapacitated?
Cognitive impairment is common among elders, and some people become unable to manage their affairs because of physical ailments. If you do not take the right steps in advance to address this possibility, the state could appoint a guardian to act on your behalf.
You can take the matter into your hands if you execute the appropriate incapacity planning documents. If you have a living trust, you can name a disability trustee to act as the administrator in the event of your incapacity.
For property that is not in a trust, you can designate an agent in a durable power of attorney for property. Another durable power of attorney can be added to name someone to make medical decisions on your behalf, and you can state your life support preferences in a living will.
Schedule a Consultation Today!
The last question to ask yourself is this: why go through life without an estate plan when help which is just a phone call away?
If you are ready to stop the procrastination, you can schedule a consultation appointment at our Charlotte, North Carolina or Huntersville, North Carolina estate planning office if you call us at 704-944-3245.
The number in Ashland, Kentucky is 606-324-5516, and the number in Florence, Kentucky is 859-372-6655. You can also fill out our contact form if you would rather send us a message.