Many people understand the importance of an estate plan but often delay starting the process. One common reason for procrastination is not knowing where to begin.
The key to getting started is identifying your objectives. By asking yourself a series of questions, you can create a clear plan that suits your needs. In this post, we’ll explore some important questions to consider when planning your estate.
Are You Exposed to the Estate Tax?
One of the first questions to ask yourself is whether your estate is subject to the federal estate tax. This tax can significantly reduce the value of your estate, as it has a top rate of 40%.
However, the good news is that most estates are not affected because of the high exclusion amount.
In 2024, the federal estate tax exclusion is $13.61 million. This means you can transfer up to $13.61 million before the estate tax applies to the remaining assets. This exclusion is set to sunset at the end of 2025, at which point it will revert to the 2017 level of $5.49 million indexed for inflation.
If your estate’s value exceeds $6 million, you may want to take advantage of the current exclusion by giving gifts or funding a trust while this higher threshold is in place.
It’s worth noting that the federal gift tax is unified with the estate tax, meaning the exclusion applies to both lifetime gifts and the value of your estate at death.
Are You Comfortable Leaving Lump Sum Inheritances to Your Heirs?
Consider whether your beneficiaries are financially responsible enough to handle a lump sum inheritance.
Some people, particularly those who are younger or inexperienced with managing large sums of money, may not be well-equipped to handle a substantial inheritance. This could lead to the money being spent quickly, leaving your heirs with little financial security in the future.
If this concerns you, a revocable living trust with a spendthrift provision can help. With a living trust, you can act as the trustee while you’re alive and name a successor to take over after your passing.
The trust becomes irrevocable upon your death, protecting the principal from creditors and ensuring that the money is managed according to your wishes.
You can also set up the trust to distribute funds incrementally, allowing your beneficiaries to receive smaller amounts over time. This structure can prevent reckless spending and ensure that the inheritance lasts longer.
Have You Considered Long-Term Care Costs?
Another critical question is whether you’ve accounted for potential long-term care expenses in your retirement plan. Many people focus on covering day-to-day expenses but overlook the possibility of needing extended care later in life.
A significant portion of seniors will require long-term care, and over one-third will eventually reside in a nursing home. The cost of nursing home care can exceed $100,000 per year, and Medicare does not cover these expenses.
You should discuss nursing home asset protection strategies with your attorney when you are planning your estate.
Have You Taken Steps to Prevent a Guardianship?
As people age, cognitive impairment or physical illness can prevent them from managing their own affairs. If you haven’t planned for this possibility, the state may appoint a guardian to handle your personal and financial matters.
While this ensures you receive necessary care, it also means you lose control over who makes decisions on your behalf. By including incapacity planning in your estate plan, you can avoid this outcome.
A durable power of attorney for property allows you to appoint someone to manage your finances if you become incapacitated. If you have a living trust, you can name a disability trustee to take over management of the trust if needed.
In addition, a living will lets you outline your preferences regarding life-support treatments, while a durable power of attorney for health care designates someone to make medical decisions on your behalf.
New to Arizona?
A lot of people are moving to Arizona, and you should definitely schedule an estate plan review if you have relocated to our state. Our doors are open to newcomers, and we are here for others that have been here all along.
You can schedule a consultation with a Tucson, Oro Valley, Phoenix, or Scottsdale estate planning lawyer if you call us at 888-222-1328. There is also a contact form on this site you can use to send us a message if you need help to shape your estate plan.
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