Estate planning creates a legal framework to manage assets in the event of incapacity or death and should incorporate tax planning to protect income and preserve assets. A recent article from The Street, “Don’t Be a Grasshopper: The Importance of Proactive Tax and Estate Planning,” references Aesop’s fable, “The Ant and the Grasshopper.” The hard-working ants in this fable engage in preparations for winter to secure their future, while the grasshoppers are unprepared when the cold weather arrives. Focusing on preparing an estate plan now to address the future will result in streamlining your wishes and in achieving maximum asset preservation for your family.
The basic fundamentals for estate plans include having an experienced attorney create a series of documents that convey your wishes. Asset distribution may be accomplished through a Last Will and Testament or through the creation and funding of trusts. One of the many benefits of trust creation is that trust assets are distributed directly to beneficiaries without requiring a lengthy, public and potentially cost prohibitive court probate.
Other estate planning documents include a Power of Attorney, which designates another person to handle financial and legal decisions on your behalf in the event that you are incapacitated. The Power of Attorney terminates upon your death, and is utilized only while you are living. A Medical Power of Attorney, often referred to as a Healthcare Proxy, is used to give another person the power to be involved with your medical care. This includes the ability to speak with your health insurance provider and to be part of your health care decision-making process.
The specific estate and tax planning strategies that will be beneficial to you often depend on the size of your estate and the type of assets owned. If you own a home, a car and investment accounts, then a will and a specific type of trust may be needed to distribute your assets according to your wishes. If your family includes a disabled person, you should speak with an estate planning attorney regarding the possibility of implementing a Special Needs Trust. Where long-term care for a family member is a concern, a Medicaid Asset Protection Trust may be helpful to protect assets and the financial security of the remaining family members.
The complexities of proactive estate and tax planning increase greatly for those with significant wealth. Strategies that include a Dynasty Trust or an Irrevocable Trust may be beneficial for estates that near or exceed the federal and state estate tax exemption thresholds. Meeting with an estate attorney to implement strategies to address the federal estate tax exemption and the potential exemption sunset in 2026 may result in significant asset preservation for your family.
Where possible, it is advantageous to communicate your wishes with your family to limit uncertainty after your passing. Deciding how transparent to be with your children and grandchildren is often a complex process when addressing family relationships. This obstacle is often overcome with a series of family meetings, often with your estate planning attorney.
Regardless of your estate size and family dynamic, taking the time to create or update an estate plan is a kindness to your loved ones. They will know you made an effort to prepare so they can celebrate your life and hold their memories close without the distraction of family disagreements or protracted court proceedings.
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Reference: The Street (September 3, 2024) “Don’t Be a Grasshopper: The Importance of Proactive Tax and Estate Planning”