As Mount Clemens estate planning lawyers, we feel a great deal of responsibility when it comes to educating people in our community. With the proper planning, you can prepare for the eventualities of aging as you craft your legacy, but a lot of people don’t understand how it’s done. In this blog post, we will share four important pieces of information in a question and answer format.
At what age should you put an estate plan in place?
This is a very good question. Since the average lifespan is close to 80 years, you may assume that you don’t have to start planning your estate until you are a senior citizen. In fact, this would be a huge mistake. It is actually quite logical to suggest that estate planning is more important for younger adults than it is for seniors.
The children of people in their 50s or 60s are typically going to be grown adults that are self-supporting. On the other hand, people in their 20s, 30s, and 40s often have dependent children still living at home. While it is true that most people do not pass away when they are in these age groups, it does happen each and every day. It is important to make sure that you have a plan in place that will protect your family come what may.
What happens if I don’t have an estate plan?
If you die without having any type of estate planning documents in place, the probate court would step in. The intestacy laws of the state of Michigan would be used to determine who inherits your property. Under these circumstances, it is very possible that your true wishes would not carried out, and people that you love could be disinherited.
Is there any reason to use a trust if I am not wealthy?
There are some types of trusts that have traditionally been used by high net worth individuals to obtain estate tax efficiency. This leads to the misconception that trusts are only useful for the wealthy. In fact, another type of trust called a revocable living trust that can be the right choice for many people that are not multimillionaires.
If you utilize a last will to state your final wishes instead of a trust, you would name an executor or personal representative to handle the estate administration tasks. This individual would not be allowed to act independently. The will would be admitted to probate, and the probate court would supervise the administration of the estate.
There are a number of drawbacks that go along with the probate process. First, it is lengthy; it will typically take at least nine months, and complicated cases can be stalled in probate for considerably longer. Probate costs are another pitfall. There are court costs, attorney fees, the executor’s payment, liquidation expenses, appraisal charges, and other incidental expenses that shave down the value of the estate before it is passed along to the heirs. The probate process also provides an opportunity for disgruntled parties to challenge the terms of a last will.
You can avoid all of these negatives if you use a revocable living trust instead of a last will as your vehicle of asset transfer. The trustee that you name in the document would have the power to distribute assets to the beneficiaries outside of the probate process. Plus, with a last will, you would be providing lump sum inheritances to the heirs. If you use a living trust, you can instruct the trustee to distribute limited amounts of money over an extended period of time.
Will my heirs pay taxes on their inheritances?
No, inheritances are not subject to regular income taxes. This would include life insurance proceeds that are paid out to a beneficiary. Inheritors also receive a step up in basis if they take possession of appreciated assets. The value of the assets for capital gains purposes would be equal to their value at the time of the transfer, so the inheritor would not be responsible for the gains.
Though there was a push for a total federal estate tax repeal when the 2018 tax cuts were being negotiated, the estate tax is still in place. However, the exclusion was raised to $11.2 million. It was $5.49 million in 2017. This is the amount that can be transferred before the estate tax would be applied.
You can learn a lot more if you attend one of the seminars that our Mount Clemens estate planning lawyers are holding over the coming weeks. You can see the schedule if you click this link, and when you identify the session that is right for you, follow the instructions to reserve your seat.