Imagine sitting next to an estate planning lawyer on a long flight. You strike up a conversation, and soon you’re asking questions about wills, trusts, and other estate planning essentials.
This may not happen in real life, but this hypothetical exchange can help you understand key aspects of the process.
Is a will all you need?
You might think that a will is all you need to handle your estate, but the reality is more complex.
While a will is one option for distributing your assets after you pass away, it may not always be the best choice, especially if your situation isn’t straightforward. In many cases, a trust might be a better option.
Why consider a trust instead of a will?
A will must go through succession, a court-supervised process that can be both costly and time-consuming. During this phase, your estate’s assets are inventoried, debts are paid, and what remains is distributed to your beneficiaries.
This process can take months, even years, and it will reduce the value of your estate due to legal fees and other costs.
In contrast, a living trust allows your assets to bypass succession entirely. This means faster distribution to your beneficiaries and less expense overall.
Additionally, with a living trust, you can set up specific conditions for how and when your beneficiaries receive their inheritances. For instance, if you’re concerned about a beneficiary’s spending habits, a trust can provide limited distributions over time.
Another significant advantage of a trust is asset protection. The assets within a living trust are protected from the beneficiaries’ creditors, offering a layer of financial security that a will cannot provide.
Beyond living trusts, there are other types of trusts that can serve different purposes. There are many tools in the toolkit, so you should explore your options with the benefit if professional guidance.
Will my estate be taxed?
The federal estate tax is a concern for some, but it doesn’t affect everyone. In 2024, the federal estate tax exclusion is $13.61 million, meaning that only estates exceeding this amount are subject to the tax.
Most people won’t need to worry about federal estate taxes, but if your estate is large enough to be taxed, there are strategies you can use to reduce the burden. Irrevocable trusts, for instance, can be part of an effective tax mitigation strategy.
There is another consideration at the present time. The current exclusion is the highest it has ever been, and it is in place because of a provision in the Tax Cuts and Jobs Act of 2017.
Back then, the exclusion was $5.49 million. The aforementioned provision is going to expire or sunset on New Year’s Day in 2026. At that time, the exclusion will revert back to the 2017 level of $5.49 million indexed for inflation.
Who serves as the trustee of a trust?
When you create a revocable living trust, you can serve as the trustee while you’re alive, maintaining control over the assets within the trust. However, if you set up an irrevocable trust, you won’t be able to act as the trustee.
Choosing the right trustee is crucial. This person should be someone you trust to manage your assets responsibly and according to your wishes. The trustee should have the financial and administrative skills needed to handle the role effectively.
If you don’t know anyone who fits this description or you want to avoid potential conflicts of interest, you can hire a professional fiduciary.
Trust companies and the trust departments of banks offer trustee services. This can be an excellent choice for ensuring that your trust is managed properly.
Why is incapacity planning important?
Incapacity planning is a critical component of any comprehensive estate plan. If you become incapacitated and are unable to manage your affairs, having a plan in place ensures that your wishes are followed.
If you have a living trust, you can name a disability trustee to manage the trust if you become incapacitated. For assets not held in the trust, you should create a durable power of attorney for property. This will designate someone to manage your finances if you’re unable to do so.
You should also establish a durable power of attorney for healthcare, appointing someone to make medical decisions on your behalf. A living will should be added to assert your life-support utilization preferences.
Finally, to ensure that your healthcare agent can access your medical records, include a HIPAA release form in your plan.
Be honest – is a lawyer really necessary to plan your estate?
There are websites that sell DIY legal documents, including wills and trusts. Technically, you do not have to be a lawyer to execute legally binding documents.
However, you can draw up your own contract to purchase a house. If you are sued, you can represent yourself in court, and you can act as your own counsel during contentious divorce proceedings.
Even though you can go it alone under these scenarios, would you consider doing so? Most people would emphatically say no, so why would you put estate planning in a different category?
When you plan your estate, you are preparing to transfer everything you have earned to the people you love the most. There is a lot of stake, and mistakes can yield devastating consequences.
Legal counsel is invaluable when you are planning your estate. You can be certain that the documents will be ironclad, and you will have the insight you need to make informed decisions
Given the potential costs of improper planning, the investment in legal guidance is a prudent one.
Ready to have a real conversation?
If you’re ready to discuss your estate planning needs with a professional, our team is here to help. We offer personalized estate planning services tailored to your unique situation.
There is no reason to take pause because you feel uncomfortable discussing sensitive matters with someone you just met. As soon as you walk through our doors, you will feel our sincere commitment to the well-being of our neighbors.
To schedule a consultation, call our Metairie, LA estate planning office at 504-831-2348, or send us a message via our contact form.
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