If you were sitting next to an estate planning lawyer on an airplane and you had a chance to pick their brain, what would you ask? It would definitely be an enlightening conversation. In this article, we will present a hypothetical give-and-take here to pass along some valuable information.
Why is estate planning important?
You would die intestate if you pass away without any estate planning documents. The probate court would step in to sort out the matter. In the process, they would appoint a personal representative to act as the administrator.
Final debts would be paid. The assets would ultimately be distributed in accordance with the intestate succession laws of the state of your state. Under these circumstances, your own true wishes may not be carried out. This is the most important reason why you should put a plan in place.
In addition, there are many different ways to facilitate asset transfers. You can make sure that your loved ones receive their inheritances in the optimal manner if you work with an estate planning lawyer to implement a personalized plan.
Is a will the only document you really need?
This is a very commonly held misconception. You definitely need some type of document to facilitate asset transfers. A will is one of the a possibilities.
However, a living trust is a better choice for a wide range of people. You do not have to be wealthy to benefit from the utilization of a living trust.
One such trust is referred to as the revocable living trust. This trust allows you to change your mind and take back direct personal possession of the property that you conveyed into it. You would act as the trustee throughout your life. As a result, you maintain direct control of the assets every step of the way.
In the trust declaration, you name a successor trustee to act as the administrator after your passing. Your listed beneficiaries would remain the same. The administration process would be streamlined because of the consolidation of asset ownership.
You do not have to provide lump sum inheritances to the beneficiaries all at once when you have a living trust. When you are drawing up the trust, you decide on the way you want the trustee to distribute the assets. In addition, the principal is protected from the beneficiaries’ creditors.
This is just a quick rundown of the benefits, but there are others, and the revocable living trust is not the only alternative to a simple will.
Will my heirs pay taxes on their inheritances?
For the most part, the answer is no. A direct inheritance that is received through the terms of a will is not considered to be taxable income. This would also apply to life insurance proceeds.
Distributions of the principal in a living trust are not taxable. However, distributed interest is subject to taxation. Beneficiaries of Roth individual retirement accounts receive the distributions tax-free. Traditional retirement account beneficiaries have to pay taxes on the income.
Appreciated assets that are inherited get a stepped-up basis. This means that the inheritor is not responsible for the appreciation that accumulated during the life of the person that is leaving the inheritance.
There is a federal estate tax. Fortunately, most people don’t have to worry about it because there is an $12.92 million exclusion. This is the amount that can be transferred tax-free before the estate tax would potentially be levied on the remainder.
It is scheduled to go down to $5.49 million in 2026 when a provision in the Tax Cuts and Jobs Act expires. There are 12 states that have state-level estate taxes, so this is another consideration.
Answers From An Estate Planning Lawyer: We are here to help!
If you are ready to have your own conversation with an Oklahoma City estate planning lawyer, we are here for you. You can schedule a consultation appointment if you give us a call at 405-843-6100.
The number for our location in Tulsa is 918-615-2700, and you can fill out our contact form if you would rather send us a message.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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