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Estate Planning Demystified

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estate planning, image of couple sitting together on a couchStudies show that the majority of Americans do not have estate plans in place. Interestingly, researchers have found that most people who are unprepared know that estate planning is important. Many say they haven’t acted because they don’t know where to begin.

With this in mind, we are going to break it down and explain the components that comprise a well-constructed estate plan.

Asset Transfers

The first order of business is to facilitate the passing of your legacy to your loved ones. There are different ways to go about it, and you should explore your options so you can make informed decisions.

Simple Will

Everyone has heard of the document called a simple will, but a lot of people harbor misconceptions about how easy it is to distribute inheritances through the terms. If you use a will, you name an executor in the document to administer your estate after your passing.

The executor cannot follow the instructions in the will and distribute the assets immediately after your death. Unless it is a small estate, the will would be admitted to probate.

This is a court supervised process that takes time, and expenses accumulate during probate. In addition, probate is a public proceeding, so the records are available to interested parties.

After the estate has been probated and closed, the executor will distribute the resources. The inheritors have no asset protection or spending safeguards going forward. This can be a source of concern if you have someone on your inheritance list who is not good with money.

Revocable Living Trust

A revocable living trust is another option as the centerpiece of your estate plan. With this type of trust, you would be the trustee while you are living. You would have total access to and control of the assets that you convey into the trust.

The “revocable” designation is quite literal; you can dissolve the trust if you ever choose to do so. You can also change the terms along the way, so you have a lot of flexibility.

When you draw up the trust, you name a successor trustee to assume the role after your passing. This can be a person you know, or it can be a professional fiduciary. Trust companies, banks, and some other professionals provide trustee services for a fee.

There is asset protection in place after you are gone when you have a living trust. The trust will become irrevocable at that point. The beneficiaries will not have direct access to the assets in the trust, and this also applies to their creditors.

You’re not forced to allow for lump sum distributions when you have a living trust. For example, you can instruct the trustee to distribute the trust’s annual earnings broken up into monthly payments.

Lastly, the administration of a revocable living trust is not subject to probate, so the process is more direct, straightforward, and efficient.

Irrevocable Trusts

There are also irrevocable trusts that satisfy certain targeted objectives, and estate tax efficiency is one of them. We have a federal estate tax, but it is not a factor for most people because there is a high exclusion.

For the rest of 2024, the exclusion will be $13.61 million. High-net-worth individuals with estates valued in excess of the exclusion use irrevocable trusts to mitigate the impact.

This type of trust is also used for Medicaid planning purposes. Medicare doesn’t cover long-term care, but Medicaid will pay the expenses if you can qualify. Since it is a need-based program, you will be ineligible if you have significant assets in your own name.

As a response, you could convey assets into an irrevocable trust, and you could continue to receive income that is generated by the resources. The principal would not count if you apply for Medicaid as long as you fund the trust at least five years before you apply.

These are couple of the utilizations, and there are others, including estate planning for people with special needs and parents who are getting remarried.

Incapacity Planning

When you reach an advanced age, you may become unable to make decisions for yourself. Alzheimer’s strikes over 30 percent of the oldest old, and this is a major culprit. There are other causes of dementia, and some people cannot communicate decisions due to physical ailments.

If you do nothing to prepare for this eventuality, the state can be petitioned to appoint a guardian to act on your behalf. Under these circumstances, family members can have disagreements about the right way to proceed. Plus, the person who is chosen may not be someone you would have selected yourself.

You can take the matter into your own hands in advance when you plan your estate. Your incapacity plan can start with a durable power of attorney for property. The agent that you name will be empowered to make financial decisions for you if it becomes necessary.

If you have a living trust, you can name a disability trustee to manage the trust in the event of your incapacity.

On the medical side of things, you should include a living will. With this type of will, you assert your life-support preferences. You can add a durable power of attorney for healthcare to name someone to make medical decisions on your behalf that are not related to life-support.

Physicians cannot release medical records to anyone other than the patient due to HIPAA regulations. Your plan should include a HIPAA release to give your healthcare representative the appropriate access to your records.

Schedule a Consultation Today!

We can help if you would like to work with a Southlake, TX estate planning lawyer to put a plan in place. You can send us a message to request a free consultation appointment, and we can be reached by phone at 817-899-3286.

Brandon McGee
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