A lot of people that are fully aware of the importance of estate planning are unprepared because they don’t have a starting point. With this in mind, we will share some questions here. When you think about the answers, your estate plan will start to take shape.
Are family members relying on your income?
Even if you are single and you have no children, you should have a basic estate plan in place, but you would be taking a minimal risk if you do not. On the other hand, if you are married and your spouse is depending on your income, estate planning is much more important.
When there are children involved, estate planning is an absolute necessity. There are two main considerations when you are planning your estate as a parent of dependent children. One of them is the financial part of the equation.
Obviously, children cannot handle their own funds, so you have to empower an adult to manage assets on behalf of your dependents. If you establish a revocable living trust, you would act as the trustee while you are alive, and you and your spouse could be co-trustees if you are married.
You would name a successor trustee to assume the role if you and your spouse pass away, so a potential money manager would be in place. The other piece to the puzzle is the designation of a guardian, and you can do this in a simple will.
A living trust is a more comprehensive long-term solution, but you could alternately use a testamentary trust, which is a trust that is contained within a will.
How are you going to fund the trust? Life insurance is the ideal income replacement vehicle, and the trust can be the beneficiary of life insurance.
Will estate taxes be a source of concern?
An inheritor does not have to report an inheritance on their state or federal income tax returns, but there are estate taxes that can have a significant impact. Most states do not have state-level estate taxes, but Connecticut is one of the 12 states with this type of tax.
There is an $11.7 million federal estate tax exclusion in 2021. You can transfer this amount tax-free, and any portion of your estate that exceeds this amount would potentially be taxable.
This figure could go down to just over $6 million next year if the reconciliation bill that is in Congress is passed and the provision that would reduce the estate tax exclusion is still in it.
Even if this does not happen, the exclusion is scheduled to go back to the 2017 level of $5.49 million indexed for inflation on January 1, 2026.
The Connecticut estate tax exclusion is $7.1 million for the rest of this year.
Are you comfortable leaving lump sum inheritances?
You do not necessarily have to provide all of the inheritances that you will be leaving in lump sums. If you have concerns about the money management capabilities of an heir, you can make them the beneficiary of a living trust with a spendthrift clause.
This would prevent the beneficiary from accessing the principal, and their creditors would not be able to go after assets that are in the trust. You can choose the amount and frequency of the distributions, so you can spread them out over time to limit spending.
An incentive trust can be utilized to influence the behavior of a beneficiary. You can use a supplemental needs trust to provide for a loved one with a disability without impacting eligibility for need-based government benefits.
If you are getting remarried as a parent and you want to make sure that your children receive their full inheritances, you can establish a qualified terminable interest property trust.
Who will act on your behalf in the event of your incapacity?
The state can be petitioned to appoint a guardian to act on your behalf if you become incapacitated late in your life. If you would rather take the matter into your own hands in advance, you can include an incapacity component in your broader estate plan.
You could empower the successor trustee to step into the role if you become incapacitated if you have a living trust. To account for property that is not held by a trust, you can name a representative in a durable power of attorney for property.
A durable power of attorney for health care can be added to name a medical decision-maker, and you should state your life support preferences in a living will. Your plan should rounded out a HIPAA release that will allow your agent to access your medical information.
Are you ready to actualize your outline?
If you have given these questions some thought, you are ready to take the next step. You can call us at 860-548-1000 to schedule a consultation at our estate planning offices in Glastonbury or Westport, CT, and you can use our contact form to send us a message.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021.
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