What does estate planning entail? If you ask this question to a random person, they will probably say you draw up a will. This is an obvious option, but a trust can be a better choice in many instances. Let’s look at some of these situations.
Timely Asset Distributions
Do you want your loved ones to receive their inheritances shortly after your passing, or would you like them to wait for eight or nine months at minimum?
If you think this is an absurd question, you should understand the fact that they would in fact play a waiting game if you use a will.
The executor that is named in the document would admit the will to probate, and the court would provide supervision during the estate administration process. In most jurisdictions, it will take a minimum of about eight months for probate to run its course.
Fortunately, there is an alternative that will facilitate more timely asset transfers. You can use a revocable living trust as the centerpiece of your estate plan, and the assets would be distributed in accordance with your wishes outside of probate.
In addition to the time factor, probate expenses can be considerable, and anyone with an interest can access the records to find out how the assets were transferred. You avoid these negatives as well if you use a living trust as your asset transfer vehicle.
Estate Tax Efficiency
People who are in possession of a significant amount of wealth have to be concerned about estate taxes. There is a federal estate tax with a 40 percent top rate, and there are 12 states with state-level estate taxes. Connecticut is one of these states.
The exclusion is the amount that can be transferred before the estate tax would be applicable on the remainder. On the federal level, the exclusion is $12.92 million this year
With regard to the federal estate tax exclusion, the provision in the Tax Cuts and Jobs Act that established a record-high exclusion will sunset on January 1, 2026. At that time, the exclusion will revert back to the 2017 level, which was $5.49 million, indexed for inflation.
If your estate is going to be exposed to taxation, there are a number of different types of tax efficiency trusts that can be used to mitigate the damage.
Special Needs Planning
Many people with disabilities have sparse financial resources, so they can get their health insurance through the Medicaid program, and they can also receive Supplemental Security Income.
Once eligibility has been granted, it is not necessarily permanent. An improvement in financial status can cause a loss of eligibility, so it would be unwise to leave a person that is in this position a direct inheritance through the terms of a will.
You can provide an inheritance for a person with a disability that is relying on these benefits through the utilization of a supplemental needs trust. The trustee that you name would administer the trust, and the beneficiary would not have direct access to the resources.
Assets that have been conveyed into the trust can be used to make many different types of purchases that improve the life of the beneficiary.
These would include a motor vehicle, vacations with or without a companion, tuition, computers, recreation and leisure activities, and health care services that are not covered by Medicaid. This is just a partial list of the many different expenditures that would be approved.
Benefit eligibility would not be negatively impacted if the rules are followed correctly. After the death of the beneficiary, the successor that you name in the trust declaration will inherit the remaining assets.
Schedule a Consultation Today!
We are here to help if you are ready to develop a custom-crafted plan that is ideal for you and your family. You can call us at 860-548-1000 to schedule a consultation appointment at our Westport or Glastonbury, CT estate planning offices, and you can fill out our contact form to send a message.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021, 2022 and 2023.