Far too many people do not understand the benefits of proper estate planning. If you take the wrong steps, you can leave behind a difficult situation for your loved ones. Worse yet, a complete lack of action can result in disinheritances and worse.
In this post, we will look at some of the things that good estate planning can do for you and your family. There are so many of them, we will provide a follow-up post to complete the explanation.
Facilitate Smooth Asset Transfers
You may assume that you will use a will when you get around to planning your estate. This is definitely an option, but is it the right one? Many people that understand the facts would say that there are better asset transfer methods.
There are actually a number of significant limitations and drawbacks that go along with the utilization of a will, and inefficient estate administration is one of them.
If you use a will, you would name an executor to act as the estate administrator after your passing. They would admit the will to probate, which is a legal proceeding that takes place under the supervision of a court.
Your final bills are paid during probate. Your executor identifies and inventories your assets, in preparation for distribution. They will create an estate bank account, and relevant government agencies are notified about your passing.
Probate can take about eight or nine months, for simple cases. Complicated cases can be stuck in probate for a longer period of time. While your estate is being probated, your assets cannot be distributed. This situation is less than ideal for the rightful inheritors.
In addition, probate expenses include the executor’s payment, potential legal and accounting fees, court costs, appraisal and liquidation charges, and incidentals. These expenses reduce the value of the estate before it is transferred to the beneficiaries.
Another negative is the loss of privacy. Probate records are public records. As such, they can be accessed by interested parties that want to find out how you planned your estate.
Provide Asset Protection and Spendthrift Safeguards
Plus, the people that are named as inheritors will receive lump-sum inheritances with no asset protection or spending controls going forward.
Using a living trust instead of a will as the centerpiece of your estate plan can help you avoid these drawbacks. You would be the trustee while you are living. As such, you would not surrender control of your assets. The individual you name as your successor trustee would administer your trust after you are gone.
They would follow your instructions when the time comes and distribute the assets in accordance with your wishes. If you want to allow for limited distributions on an incremental basis to prevent poor financial decision-making, you can do so. From an asset protection perspective, the assets in the trust would be protected from the beneficiary’s creditors.
Nursing Home Asset Protection
Good estate planning will recognize the need for another type of asset protection. Most senior citizens will incur long-term care expenses at some point. Unfortunately, Medicare does not pay for custodial care. That’s right, if you move into a nursing home, Medicare will not cover the costs.
These facilities are very expensive, so this is a big deal. Nursing home expenses can potentially deplete your children’s inheritances.
Fortunately, there is a solution in the form of Medicaid eligibility. This is a government program that will pay for long-term care. However, it is a need-based program. You have to transfer assets out of your name to develop a financial profile that will lead to eligibility.
This will typically involve the utilization of an irrevocable, income-only Medicaid trust. The assets in the trust will not count as long as you transfer assets into it at least five years before you apply for Medicaid. Meanwhile, you can still accept distributions of the trust’s earnings.
Schedule a Consultation Today!
If you would like to work with an Oklahoma City estate planning lawyer to put a plan in place, call us at 405-843-6100 to schedule a consultation. There is also a contact form on this site you can use to send us a message.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.