A lot of people think that estate planning is something that is only important for very wealthy people. They think that you do not need to work with an attorney to map out a comprehensive strategy unless you are a multimillionaire. In reality, this is patently false, and we will look at the subject in this post.
Part of this misconception comes from the little bits and pieces of information that folks hear about estates and taxation. Generally speaking, an inheritance is not subject to regular income taxes. Plus, inherited appreciated assets get a stepped-up basis for capital gains purposes. Inheritors are not responsible for gains that accumulated during the life of the decedent.
However, high net worth individuals do have to be concerned about taxation. There is a federal estate tax that carries a 40 percent top rate, and there is a state-level estate tax in Connecticut. The reason these taxes are only a factor for the wealthy is because there are exclusions.
An exclusion or credit is an amount that can be transferred tax-free before the remainder would be subject to taxation. The federal estate tax exclusion is $12.92 million for 2023 which is an increase from the $12.06 million in 2022. The Connecticut state estate tax exclusion is $12.92 million in 2023 which is up from $9.1 million in 2022.
Yes, most people do not have to pay these taxes, and estate planning attorneys do help certain clients develop tax efficiency strategies. However, this does not mean that estate planning is not useful for people to do not have to be concerned about these taxes.
Streamlined Estate Administration
Most people that think estate planning is only for the rich assume that that a will is the only estate planning documents they will need. They assume that a will is the simplest and quickest way to get assets into the hands of their loved ones.
In actuality, this is not the case. The executor that is named in a will is required to admit the document to probate. This is a legal process that takes place under the supervision of a court.
Probate will take about nine months at minimum in most cases. No inheritances are distributed while the estate is being probated. There are expenses that accumulate during probate as well, and they can consume a noticeable portion of an estate.
Thirdly, probate is a public proceeding. Interested parties can access probate records to find out what transpired, so there is a loss of privacy.
If you were to consult with an estate planning lawyer about all of this, they would explain the value of the revocable living trust. When you have a living trust, distributions to the beneficiaries after you die are not subject to probate.
There is another living trust benefit that a will cannot provide. People that are named in a simple will get lump-sum inheritances all at once, so there is no asset protection going forward, and there are no spending safeguards.
On the other hand, if you have a living trust, you can dictate the terms of the distributions when you draw up the trust declaration. For example, you can instruct the trustee to distribute the earnings that are generated by invested assets on an incremental basis.
In addition, the trust will become irrevocable after your passing. The beneficiary would not be able to directly access the assets, and this would also apply to their creditors.
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These are a couple of examples, but there are many others. There are many tools in the estate planning toolkit, and there is an optimal approach that can be taken to address any situation.
When you choose our firm, we will gain an understanding of your unique situation and your objectives. Subsequently, we will provide recommendations so you can make informed decisions. At the conclusion of the process, you will emerge with a custom crafted plan that is ideal for you and your family.
If you are ready to get started, you can schedule a consultation at our Westport or Glastonbury, CT estate planning offices if you call us at 860-548-1000. There is also a contact form on this site you can use if you would rather send us a message.
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