A lot of people procrastinate before they put estate plans in place because they do not know where to begin. This is understandable, and there are different approaches that can be taken depending on the circumstances.
At the same time, there is a basic framework that applies to everyone, and we will take a look at it here.
Asset Transfers
You have to facilitate postmortem asset transfers when you plan your estate. Everyone has heard of the simple will, and this is one way that you can record your final wishes with regard to the distribution of your property.
There are also a number of different types of trusts that can be utilized to satisfy certain objectives. Some of them are irrevocable, and there is also the revocable living trust.
As a layperson, you are simply not going to understand all the different transfer methods that are available. A perfectly acceptable way to transfer assets to one person on your inheritance list may not be appropriate for the next, and this is another consideration.
When you work with our firm, we will gain an understanding of your family dynamic and your objectives and help you devise a custom crafted plan that ideally suits your needs.
Taxes
A lot of people have questions about taxes on inheritances, and for the most part, the news is good. If you receive a direct inheritance through the terms of a will, or if you are the beneficiary of a life insurance policy, the income would not be taxable.
Distributions of the principal in a living trust are not subject to taxation, but the trust’s earnings are looked upon as regular income by the IRS and state tax authorities.
The beneficiary of a Roth individual retirement account does not pay taxes on the distributions, but distributions to traditional account beneficiaries are taxed.
Why is there a difference?
Traditional accounts are funded before taxes have been paid on the income, but Roth accounts are funded with after-tax earnings.
If you inherit assets that appreciated during the life of the person that left you the inheritance, the assets would get a stepped-up basis. The inheritor would not be responsible for capital gains that accumulated during the life of the decedent.
There is a federal estate tax, but a very small percentage of people pay it because there is an $12.92 million exclusion in 2023. We will provide more details about estate and inheritance taxes in a future post.
Advance Directives for Health Care
You may become unable to communicate your medical decisions at some point in time. Clearly, this can occur during the final period of your life, and some people that will recover are temporarily incapacitated.
To account for this possibility, your estate plan should include advance directives for health care, and one of them is a living will. You state your preferences regarding the use of life-support measures in a living will, and you can add organ and tissue donation choices.
Medical situations can arise that are not related to life-support when you cannot communicate, so you should include a durable power of attorney for health care. In this document, you name someone to make medical decisions on your behalf in the event of your incapacity.
Doctors would not be able to speak about your condition with the health care agent because of a provision in the Health Insurance Portability and Accountability Act (HIPAA). Your plan should include a HIPAA release to give your representative the right to access your medical information.
Your plan should also contain a durable power of attorney for property to give someone the power to manage your financial affairs if it ever becomes necessary.
Schedule a Consultation Today!
Estate planning is one of the basic responsibilities of adulthood, and if you are currently unprepared, action is required. This applies to everyone, but if you have family members that are depending on you, estate planning is an absolute must.
We know that it can be a bit disconcerting to discuss personal matters with someone you have just met. Our attorneys are sensitive to this dynamic, and we go the extra mile to make our clients feel comfortable from the start.
If you are ready to set up a consultation appointment at our Burbank, CA estate planning office, we can be reached by phone at 818-937-2335. There is also a contact form on this site you can use to send us a message, and if you reach out electronically, you will receive a prompt response.
- Are All Asset Transfers Subject to Probate? - November 30, 2023
- Are You Prepared for the Eventualities of Aging? - November 21, 2023
- Navigating the 2024 Estate Tax Landscape - November 17, 2023
