If you had the opportunity to speak with an estate planning lawyer who was willing to answer your questions, what would you ask? You would certainly learn a lot if you were in this position, and we will share a possible conversation of this nature in this post to shed some light on the subject.
Is a will the right transfer document to use if you are not extremely wealthy?
The idea that trusts are only for the rich is a misconception. Yes, there are irrevocable trusts that are used by high-net-worth individuals with multi-generational wealth who have estate tax concerns. However, there are other types of trusts that can satisfy different objectives.
What type of trust should someone of ordinary means consider?
For example, the revocable living trust is a very effective estate planning tool that is the ideal alternative to a simple will. You do not surrender control of assets that you convey into this type of trust, because you would act as the trustee while you are living.
Once the trust has been created and funded, you can change the terms at any time, and you will retain the right revocation. You name a trustee to succeed you in the trust declaration, and you can give this individual or entity the ability to manage the trust in the event of your incapacity.
You can ask your estate planning lawyer to include a spendthrift clause, and the trust will become irrevocable after your death. The principal will be protected from the beneficiary’s creditors, and you can set up any distribution terms that you feel comfortable with when you are drawing up the trust.
If you want the trust to remain intact for a number of years to provide ongoing income to the beneficiaries until they reach certain age thresholds, you will have this ability.
Another benefit is the streamlined estate administration process. Probate, which is a court-supervised estate administration process, would not be necessary. Plus, ownership of the assets would be consolidated under the umbrella of the trust.
A married couple could establish a joint living trust, and this can be the ideal solution for couples that have a lot of jointly owned property.
This is just one of the trusts that can be utilized, but there are others, and you should understand the tools that are in the toolkit so you can make informed decisions.
Will my family members pay taxes on their inheritances?
For the most part, the answer is no, but there are some exceptions. A direct inheritance that is received through a will is not considered to be taxable income, and this applies to life insurance proceeds and distributions of the principal in a living trust.
Distributions of the trust’s earnings would be looked upon as taxable income. Roth individual retirement account beneficiaries do not pay taxes on the distributions, but distributions from a traditional account to a beneficiary are subject to taxation.
An inheritor does not pay capital gains taxes on inherited appreciated assets because they would get a stepped-up basis. There is a federal estate tax, but it is only applicable on transfers that exceed $12.92 million, so this is not a factor for most people.
How do you prepare for incapacity if you don’t have a living trust?
Even if you have a living trust, your estate plan should include documents called advance directives for health care. A living will can be used to state your life support and organ and tissue donation preferences, and you can add comfort care medication choices.
You can name an agent to make medical decisions on your behalf that are not related to life-support utilization in a durable power of attorney for health care. A HIPAA release should be signed as well to authorize the representative to speak with your doctors about your condition.
To account for the management of property that is not held by a living trust, you can include a durable power of attorney for property.
We Are Here to Help!
If you are ready to have a real discussion with an actual Inglewood, CA estate planning lawyer, our doors are open. You can send us a message to request a consultation appointment, and we can be reached by phone at 310-677-9787.