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When it comes to estate planning, one of the most common misconceptions is that it is too early, or someone is too young to start planning for a time when they will no longer be in the picture. However, no matter how young you are or how much your assets are worth, it is never too early to start the estate planning process with an attorney by your side.
A whopping 55% of Americans die without a will or estate plan; another 72% of those who have started the process do not have an up-to-date will. When it comes to starting your estate planning or updating your existing one more extensively, there is no better way to make decisions than to arm yourself with the facts.
What is estate planning?
Estate planning is the process of creating written instructions for end-of-life care and the transfer of your estate following your passing. Your estate includes all the assets you own, such as your:
- Possessions.
- Investments.
- Real estate.
- Retirement accounts.
- Other assets, including business and life insurance policies.
It also includes any remaining liabilities that you may owe, like:
- Mortgage loan balances.
- Credit card balances.
- Student loan balances.
- Any other unpaid debts and liabilities.
Although each individual estate is unique in its size and complexity, everyone has one nonetheless — no matter their profession or career stage. For nurses, this includes:
- Nursing students.
- Newly graduated nurses.
- Mid-career Nurses.
- Pre-retiree Nurses.
- Retired Nurses.
As you can imagine, estate planning is very complex process. It requires important decisions, key designations, and legal documents --- many of which can be difficult to navigate
Estate planning is a process designed to help you manage and preserve your assets while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. But what estate planning means to you specifically depends on who you are.
Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive things. A simple will is probably all you will need. Or, you may have a large estate, and minimizing any potential estate tax impact is your foremost goal.
To help you understand what estate planning means to you, the following sections address some estate planning needs that are common among some very broad groups of individuals, by age/station in life.
Think of these suggestions as simply a point in the right direction, and then seek professional advice to implement the right plan for you.
Over 18
Since incapacity can strike anyone at any time, all adults over 18 should consider having:
· A durable power of attorney: This document lets you name someone to manage your property for you in case you become incapacitated and cannot do so.
· An advance medical directive: The three main types of advance medical directives are (1) a living will, (2) a durable power of attorney for health care (also known as a health-care proxy), and (3) a Do Not Resuscitate order. Be aware that not all states allow each kind of medical directive, so make sure you execute one that will be effective for you.
Young and single
If you are young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you do not, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).
Unmarried couples
You have committed to a life partner but are not legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.
Married couples
For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse's estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning.
You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die's estate tax exclusion, and a credit shelter trust created at the first spouse's death may still be advantageous for several reasons:
- Portability may be lost if the surviving spouse remarries and is later widowed again
- The trust can protect any appreciation of assets from estate tax at the second spouse's death
- The trust can provide protection of assets from the reach of the surviving spouse's creditors
- Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses
Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse (but a $157,000 annual exclusion, for 2020, is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.
Married with children
If you are married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them.
You may also want to consult an attorney about establishing a trust to manage your children's assets if both you and your spouse die at the same time.
You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family.
Comfortable and looking forward to retirement
If you are in your 30s, you may be feeling comfortable. You have accumulated some wealth and you are thinking about retirement. Here's where estate planning overlaps with retirement planning. It is just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).
Wealthy and worried
Depending on the size of your estate, you may need to be concerned about estate taxes.
For 2020, $11,580,000 is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent.
Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers of wealth made to grandchildren (and lower generations). For 2020, the GST tax exemption is also $11,580,000, and the top tax rate is 40 percent.
The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half.
Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.
Elderly or ill
If you are elderly or ill, you'll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.
Key Documents to Protect your wealth
Assemble these important documents:
- Last will and testament - expresses your wishes about your property after death and who will manage the distribution of your estate (your executor).
- Durable power of attorney - designates another person to represent your monetary interests and act on your behalf.
- Medical power of attorney - designates someone else to make health care and medical decisions on your behalf if you are unable to.
- Advance directive: communicates prearranged medical decisions if you are unable to.
- Patient authorization: authorizes a healthcare provider to disclose health and personal information to those whom you appoint to take care of you.
- Appointment of agent to control disposition of remains - appoints who controls your remains.
- Declaration of guardian - names a person who will be the guardian of your person and/or estate in the event of your incapacity or disability.
Other items to consider:
• Understand probate and its implications. Certain states have different taxation rules. Know yours.
• Assign your professional team, and ensure both you and they understand the role they play:
– Power of attorney
– Executor
– Trustee
– Guardian
• Make sure you keep all your documents in a safe place and tell someone you trust where they are located.
• Coordinate account registrations and beneficiary designations to align with your estate plan.
• Educate your survivors on the estate plan.
Additional terms to be aware of:
• Trustee: A third party designated to hold and manage assets on behalf of beneficiaries. This is often needed for beneficiaries who are minors.
• Trust: Traditionally used to minimize taxes and/or to provide additional control over the assets, trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. Since trusts usually avoid probate, your beneficiaries may also gain access to these assets more quickly.
– Revocable trust: Also known as a living trust, a revocable trust can help avoid probate, yet allows you
to retain control during your lifetime.
– Irrevocable trust: An irrevocable trust typically transfers the assets out of your estate, which can help avoid estate taxes and probate, but you cannot alter the terms or control the assets after it has been
established.
• Guarantor: A person who guarantees to pay someone else’s debt if he or she should default.
• Probate: The court-supervised settlement of an estate, probate’s purpose is to avoid fraud after death. Not all estates will go through probate. Please speak with your advisor and/or your estate attorney to discuss your specific situation.
Reach out to one of our fiduciary advisors for additional information at:
Call: (480) 364-7401 | Email: hello@cognisgrp.com | Zoom Meeting