Just because you don’t have a taxable estate doesn’t mean that you shouldn’t do estate planning. If you die without an estate plan, then you die testate, meaning your assets will be divided up according to state law. Everyone needs some sort of an estate plan so that their wishes are carried out, not the state’s.
Everyone knows what a Will is. However, did you know that every Will goes through a probate process and becomes public information in most states? Your creditors, and pretty much everyone else, will have access to it. Additionally, Wills can be contested. For instance, let’s say that you don’t want someone to inherit your assets for whatever reason. They could still have a claim against your estate when it goes through probate.
The way around probate is by setting up a Revocable Living Trust (RLT). Your assets will pass through a matter of law. A RLT is private and it cannot be contested. Not to mention, you can put restrictions on the way your assets are inherited. Don’t let a trust scare you; I will break it down and explain everything. Revocable means that the trust document can be changed; Living, because you are alive, and Trust, which is a legal document.
A trust is made up of three parties. There is the grantor, which is the person making the trust. Sometimes the grantor is called a Trustmaker. There is a trustee. This is the person or entity that controls the assets. While you are still alive, you are the trustee. Then there are the beneficiaries. These are the people that inherit the assets of the trust.
As I said earlier, you can put restrictions on the way that your assets are inherited. For example, most trusts have drug and alcohol provisions in them. If the beneficiaries have a drug or alcohol problem, then they don’t get the assets until they successfully complete a treatment program. For my wife and I, our trust has a provision where our children inherit ¼ of the assets when they turn 30, another ¼ when they are 35, and the rest when they are 40.
One important thing about an RLT is that you have to change the title of your assets to the trust. That means bank accounts, your home, or anything that you are putting into the trust needs to be titled to the trust. Along with a RLT, you need to have a Pourover Will. This Will is ONLY for the assets that didn’t get titled to the trust.
A RLT is a grantor trust meaning that you haven’t created a taxable entity. However, when you die, the RLT becomes irrevocable and must obtain an Employer’s Identification Number (EIN). The earnings of the corpus (the assets of the trust) are taxable to the beneficiaries until they are distributed to them.
Other issues with an estate plan are things like a health surrogate, or do not necessitate order. You could also do a Living Will. Your living will (health care declaration) is where you write out what you do and do not want in terms of medical care if you are unable to speak for yourself. You don’t need to become a medical expert to complete your document, but it will help you to become familiar with the kinds of medical procedures that are commonly administered to patients who are seriously ill.
In most states, living wills ask you whether or not you want to receive life-prolonging treatments at the end of life. Such procedures typically include:
- transfusions of blood and blood products
- cardiopulmonary resuscitation (CPR)
- diagnostic tests
- administration of drugs
- use of a respirator, and
If you want more information, you can discuss these treatments with your doctor or a patient representative at a hospital or health insurance plan office, or you can turn to self-help resources for more detailed information.
Permanently unconscious patients can sometimes live for years with artificial feeding and hydration without ever regaining consciousness. If food and water are removed, death will occur in a relatively short time due to dehydration, rather than starvation. Such a course of action generally includes a plan of medication to keep the patient comfortable.
When you make your health care documents, you can choose whether you want artificially administered food and water withheld or provided. This decision is difficult for many people. Keep in mind that as long as you are able to communicate your wishes, by whatever means, you will not be denied food and water if you want it.
If you want death to occur naturally — without life-prolonging intervention — it does not mean you must forgo treatment to alleviate pain or keep you comfortable. This type of care, sometimes known as “comfort care” is now more commonly called “palliative care.” Rather than focusing on a cure or prolonging life, palliative care emphasizes quality of life and dignity by helping a patient remain comfortable and free from pain until life ends naturally. Palliative care may be administered at home, in a hospice facility, or at a hospital.
You may wish to spend some time educating yourself about palliative care. You can include your feelings and preferences about such care in your living will.
In our state, they allow a medical surrogate. I would rather have my wife in charge of my care than a doctor.
As you can see, everyone needs an estate plan. They aren’t just for the ultra-wealthy.
See inside November 2017
5 Topics Every Accountant Should Address with Clients
The start of a new year is the perfect time to touch base with your clients or reach out to new ones. Don’t limit your discussion to traditional tax issues. Take the time to ask existing and prospective clients about their business plans overall.