Today, there are legal documents like wills and trusts that help ensure someone’s wishes will be carried out upon their passing or when they become incapacitated. If mistakes are made during the estate planning process, they are likely to show up at a later time. It is important to set specific goals, have ways for them to be achieved, and have trusted professionals who can help get you there.
The majority of people over 65 years old end up needing long-term care which can be extremely expensive. Besides saving up whatever you can, you can look into getting disability and long-term care insurance. Asset liquidity is also important, especially if your estate will be split up among beneficiaries. This is also important if you own a business as well because it can help your heirs run the company immediately following your passing. One way to do this is to purchase a life insurance policy.
If you have young children in your care, you will also want to designate a legal guardian. Be sure to discuss this with the intended guardian before putting anything in writing. You will also need to specify how your remaining assets will support the children, otherwise, guardians can make these decisions on their own.
The bulk of most estate plans are wills and trusts. Both have their advantages and disadvantages, but the biggest concern with wills is that they have to go through probate after the person passes away. This can be time-consuming and costly for beneficiaries.
With trusts, it is essential to choose the right executors and trustees. Executors collect the assets of the deceased, file estate tax returns, pay expenses, and settle any outstanding debts. Trustees are in control of the assets held in trusts, which can be set up while the person is alive or upon their death, according to the terms of a will. Trustees are responsible for distributing assets to beneficiaries and must follow the terms of trust agreements.
This is a lot of responsibility, so it is important to choose carefully. Picking a family member could be a conflict of interest, so it is best to use someone who can remain objective and follow your instructions without deviating. Yet, even if you choose the right person, they might not be able to do the job. Powers of attorney are another important component of estate planning and may also need to be updated.
You will also want to revisit your estate planning whenever there is a major life event that could impact how you want your assets to be distributed. For example, if you get divorced, you will want to remove your ex-spouse as a beneficiary. When grandchildren become adults, that money designated for college may no longer be needed. Beneficiaries can also become estranged or pass away and will need to be removed from your will or trust.
If you do not take the time to plan out your estate, your assets may not be distributed to your beneficiaries as you would like. Even if you set up a solid plan, you will need to update it when major life events occur. It is important to revisit the terms of your plan on a regular basis to make sure it is up to date. Otherwise, your beneficiaries could have problems.
Estate planning can be complicated, even when there are not a lot of assets involved. It can be difficult to understand all of the state and federal laws and decide how to distribute your assets equitably. A qualified lawyer will work with you to plan an estate that meets your goals and protects your beneficiaries after your passing.
How Can I Protect My Beneficiaries?
Not planning for an inheritance tax is another major mistake seen in estate planning. One example is required minimum distributions (RMDs) from 401(k) plans and IRAs. Adult children who inherit these may be subject to RMDs that can affect their tax payments because this money can be taxed as ordinary income. Options like making Roth conversions can help with this.
Estate tax can also be an issue, especially when tax laws change in the future. For now, the federal exemption is $11.4 million per person, a couple can exclude as much as $22.8 million in a taxable estate. This law is supposed to change in 2025 and will revert to the previous exemption amount, which was $5 million. You will need to understand the changing tax landscapes and may have to adjust strategies accordingly. Trusts are also taxed. Currently, this is at the highest federal income tax bracket, which starts at $13,250 in annual trust income.
You can also protect your beneficiaries from taxes by donating to your favorite charitable organizations. Philanthropy can also give back to your loved ones. You can achieve your charitable goals while reducing your estate taxes. Although there are no guarantees with this, charitable donations can sometimes reduce the amount of assets that gets passed to your beneficiaries.
Warren Wills, Trusts, and Estates Lawyers at Herold Law, P.A. Can Help You Avoid Common Pitfalls Seen in Estate Planning
If you do not have an estate plan in place or need to update an established one, reach out to one of our skilled Warren wills, trusts, and estates lawyers at Herold Law, P.A. For an initial consultation, call us at 908-647-1022 or fill out our online form. Located in Warren, New Jersey, we serve clients throughout the surrounding areas, including Plainfield.