Estate planning can seem like an exercise in planning a will. In fact, this is a misconception. There are different ways to facilitate asset transfers, and planning a will is not always going to be the best course of action.
Plus, there are end-of-life issues to address when you are devising your estate plan. As a result, a last will is not the only document you need, even if you do use a will as your asset transfer vehicle.
Let’s look at the facts.
Planning a Will
If you use a last will to state your final wishes, you nominate an executor. This is the person who will administer the estate after you pass away. The executor would be required to admit the will to probate, and the court would supervise the administration of the estate.
This is not inherently negative, but there are some pitfalls that go along with the probate process. For one, it is time-consuming. In most areas, a case that is not complicated in any way will be stalled in probate for close to a year. The inheritors receive nothing during the probate process, so this time lag can be a cause for concern.
Probate can also be expensive. There are various different costs that accumulate during the process, and these expenditures reduce the value of the estate before it is passed on to the heirs.
A revocable living trust can be used as an alternative to a last will as your primary asset transfer vehicle. With a revocable living trust, you can retain control of the assets while you are living. You would typically act as the trustee and the beneficiary while you are alive and well, and you can even dissolve the trust if you choose to do so.
After your passing, the successor trustee that you name in the trust declaration would distribute assets to the beneficiaries in accordance with your wishes outside of the process of probate.
There are other types of trusts that can be used to satisfy more advanced objectives. For example, high net worth individuals may be exposed to estate taxes. You would face federal exposure if your assets exceed the amount of the estate tax exclusion. The exclusion stands at $5.45 million in 2016. The portion of your estate that exceeds this amount would potentially be subject to taxation when it is being transferred to the heirs.
We practice law in Connecticut, and there is a state-level estate tax to contend with in our state as well. The exclusion on the state level is just $2 million.
Certain irrevocable trusts are used to gain estate tax efficiency. These would include grantor retained annuity trusts, generation-skipping trusts, charitable lead trusts, charitable remainder trusts, and qualified personal residence trusts.
Special needs planning can enter the picture for some families. You could use a supplemental needs trust to provide for a loved one with special needs without impacting eligibility for government benefits like Medicaid and Supplemental Security Income.
Trusts that include stipulations can also be created. The stipulations would prevent spendthrift heirs from squandering their inheritances.
A well constructed estate plan will also include an incapacity planning component. Many elders become unable to handle their own affairs at some point in time, with Alzheimer’s disease being a leading cause of incapacitation.
You could use a legal document called a durable power of attorney to name someone to handle your financial affairs in the event of your incapacitation. Your incapacity plan could also include a health care proxy or durable power of attorney for health care. With this document, you empower someone to make medical decisions on your behalf.
A living will would be part of the plan as well. A living will would be used to state your preferences regarding the implementation of artificial life-sustaining measures.
Attend a Free Seminar
Estate planning is a core responsibility of adulthood. Everyone should have an estate plan in place, because you never know what the future will hold. Even if you are a young adult, you should devise a plan to protect your family members.
There are numerous different legal devices that can be used to state your final wishes regarding the distribution of your resources. If you are thinking about planning a will, you should explore all of your options before you make any final decisions.
To obtain more detailed information about the estate planning strategies that can be implemented, attend one of our free seminars. There are a number of dates coming up, and you can visit our seminar schedule page to obtain details and registration information.