If you were to have an informal conversation with an estate planning lawyer, you would learn a lot in a short period of time. With this in mind, we are going to share a hypothetical conversation between a curious layperson and an estate planning attorney.
When should you start to think about developing an estate plan?
A lot of people think you can wait until you are a senior citizen for a couple of different reasons. One of them is the simple fact that they don’t like to think about their mortality.
The other reason is more practical. When you are at or near retirement age, you will probably have a better idea of exactly what you will have to pass along to your children.
This is a reasonable line of thinking, but in fact, you should have an estate plan in place as soon as you are a self-supporting adult. It becomes especially important when you have a partner that is depending on you, and it is an absolute must for parents.
You should recognize the fact that the estate plan will require updates along the way as your life situation changes. Your initial plan is just a first prudent step to make sure that you have all of your bases covered for the time being.
A simple will is all you need unless you are very wealthy, correct?
This is actually a commonly held misconception that stems from a kernel of truth. Yes, there are trusts that are used by high net worth individuals that have estate tax concerns.
At the same time, there are other types of trusts that can be very useful for a wide range of different people that are not extraordinarily wealthy.
What are some of the reasons why you might use a trust instead of a will?
If you use a will, it would be admitted to probate, and the probate court would supervise during the administration process. No inheritances are distributed until the estate has been probated by the court, and it will usually eight months or more for probate to run its course.
Probate expenses consume a relatively significant portion of the estate, and anyone that wants to access probate records can find out what transpired.
These hassles can be avoided if you use a revocable living trust instead of a will. If you go this route, the trustee that you name in the document would distribute assets to the beneficiaries outside of probate.
A living trust can be used to protect assets from the beneficiary’s creditors if this is a source of concern. You would also have the ability to spread out the distributions over time to make sure that the beneficiary does not spend their inheritance too quickly.
These are a few of the reasons why a trust can be a better choice than a will, but there are many others.
Would assets in a revocable living trust count if you apply for Medicaid?
The answer is yes, because you would retain the ability to revoke the trust, and you would act as the trustee while you are living. Since you would have total control, the assets would count if you apply for Medicaid.
They would also be part of your estate for estate tax purposes, and they would not be protected from creditors or other litigants seeking redress.
In addition to revocable trusts, there are also trusts that cannot be revoked. These are the trusts that are used by people that want to qualify for Medicaid or reduce their estate tax exposure.
Are there any steps that should be taken that fly under the radar?
A well-constructed estate plan will account for incapacity, and advance directives for health care are part of this equation. You can state your life support preferences in a living will, and you can add your organ and tissue donation choices.
The plan should include a durable power of attorney for health care as well. This document is used to name a representative that would make medical decisions on your behalf if it ever becomes necessary. These would be matters that are not specifically related to life support.
A HIPAA release is a document that you should sign to give the agent the ability to speak freely with your physicians. If this release is not in place, the Health Insurance Portability and Accountability Act would prevent doctors from sharing information about your condition.
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If you are ready to have a real life conversation with an estate planning attorney, we are here to help. You can send us a message to request a consultation appointment, we can be reached by phone at 860-548-1000.