subject: The Tools to Deal with Your Estate Planning Concerns [print this page] The Tools to Deal with Your Estate Planning Concerns
You can use a variety of tools to address the five major concerns of estate planning. This article overviews which tools are typically used for which concerns. I mentioned in another article what the five concerns that estate planning addresses. To review, they deal with what you should address before you're no longer able. Specifically how you can: 1. be cared for as you would want when you become incapacitated 2. prevent loss of much of your assets from the burden of your long term care 3. assure your assets go to the beneficiaries you choose 4. prevent public exposure, costs and delays that probating your assets will produce 5. minimize estate tax losses to your legacy you leave to your beneficiariesEach of these concerns turns out to be a task you address with the tools of estate planning. You must accomplish all these tasks while you're alive. But since you can't predict when you'll become incapacitated or when you'll die, you should tackle them as soon as possible.So what tools can you use to address each task?*Task 1: Arranging for your care when you become incapacitated: Accidents, strokes and heart attacks can leave you incapacitated - at least for a while. Two tools for determining health care options you may face are the living will, and a health care power of attorney (aka health care proxy). You may also arrange for a springing power of attorney to help handle your financial affairs when your incapacitation occurs*Task 2: Preventing asset loss to long term care costs:Everyone is obliged to pay for their long term care. That's an expensive proposition. Medicaid only pays it for you if you have very few assets - in the neighbourhood of $2,000. Medicare doesn't pay it for you. You can pay for long term care insurance so your assets won't be exhausted. Or you can arrange to remove your assets from your possession and control so Medicaid can pay your long term care costs without billing your for them. Strategies to do this latter option come under the name of Medicaid Planning. Medicaid planning uses irrevocable trusts and gifting that transfers your assets early enough so that Medicaid will not consider them transferred in preparation of going on Medicaid.*Task 3: Assuring that your assets go to beneficiary of your choice: A misunderstanding of your intentions and automatic state inheritance laws can thwart your bequest going to the person you intend. To assure it goes to whom you wish, you must make your intentions clearly known and consistent with existing laws of transfer. A Will makes clear who should get what. But you can also use trusts and joint ownership rules of transfer to achieve your wishes.Lastly, most retirement accounts and bank accounts allow you to specify a beneficiary to which the account will automatically transfer to when you die. Insurance-related accounts do too.*Task 4: Preventing excessive loss to estate and gift taxes: Estate and Gift taxes can impose high tax rates on the value of your estate when you die. Only the amount that's above some exclusion threshold is taxed though. But the rates are onerous. Your gross estate is composed of everything you own or control. Getting rid of assets before your death is the key - and that includes arranging for whom you want to have them now or eventually. Tools for this approach are the use of the annual gift exclusions and irrevocable trusts. Everything you gift triggers a gift tax on you, but gifting every year to a person or trust allows you to avoid having to pay the annual gift exclusion amount (about $13,000 per year per donee).Lastly you can make use of the estate and gift tax exclusion thresholds that come into play at your death. A by-pass trust can help here, too. *Task 5: Avoiding the publicity, cost, and delay of probate: States have probate courts that assure that what you own is accounted for and distributed according to your will and inheritance rules too. It's a time-consuming and costly process. But what is probated is only what you own that's in your name only. So to avoid probate, you must simply eliminate sole-ownership of property. You can do this by arranging for joint ownership that automatically transfers ownership of all that joint-owned property to your joint owner at your death. Or you can transfer title of all that you own in your name to a trust that will own it in the trust's name. Such a trust is called a Living Trust. You control what's in the living trust but the trust owns it so what's in it is not probated.Understanding the techniques, strategies, and limitations of the estate tools are essential to efficiently and effectively solving your estate concerns.
