Discussing and preparing a plan for your estate should you pass away or become incapacitated can be very difficult. After all, it means addressing things that most of us do not like to think about. However, estate planning does not have to be morbid. In fact, it can actually be life-affirming, because the process will allow you to take a closer look at the people you most care about in life—and ensure their future happiness.
By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. However, what estate planning means to you specifically will depend on who you are. Your age, health, wealth, lifestyle, life stage, goals, and a whole host of other factors will determine your particular estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive particular things. A simple will is probably all you will need. Alternatively, you may have a large estate, and minimizing any potential estate tax impact is your foremost goal. Here, you will need to use techniques that are more sophisticated in your estate plan, such as a trust.
The following sections address some estate planning needs that are common among some very broad groups of individuals. Think of these suggestions as simply a point in the right direction, and then seek professional advice to implement the right plan for you.
Since incapacity can strike anyone at any time, all adults over 18 should consider having:
A durable power of attorney: This document lets you name someone to manage your property for you in case you become incapacitated and cannot do so.
An advance medical directive: You would specify what medical actions to take if you are no longer able to make decisions for yourself because of illness or incapacity in this legal document.
Young and single
If you have some material possessions, you should at least write a will. If you do not, the wealth you leave behind if you die will likely go to your parents, which may or may not be what you want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).
You have committed to a life partner, but are not yet legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing.
For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse's estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning.
You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die's estate tax exclusion, and a credit shelter trust created at the first spouse's death may still be advantageous for several reasons:
- Portability may be lost if the surviving spouse remarries and is later widowed again
The trust can protect any appreciation of assets from estate tax at the second spouse's death
The trust can provide protection of assets from the reach of the surviving spouse's creditors
Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses
Married with children
If you are married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them. You may also want to consult an attorney about establishing a trust to manage your children's assets in the event that both you and your spouse die at the same time.You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family.
Wealthy and worried
Depending on the size of your estate, you may need to be concerned about estate taxes.
For 2017, $5,490,000 is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent. Similarly, there is another tax, called the generation-skipping transfer (GST) tax, which is imposed on transfers of wealth made to grandchildren (and lower generations). For 2017, the GST tax exemption is also $5,490,000, and the top tax rate is 40 percent. Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.06272017 Blog
Elderly or Ill
If you are elderly or ill, you will want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.
If you have questions about your Estate Plan, please contact your HCM Wealth Advisor. We will be happy to help you connect with a legal professional who can serve your family’s needs.