A survey was conducted earlier this year to gauge the estate planning preparedness of American adults. Most of the people that responded did not have inheritance planning documents in place. Many of them said that they were frozen with inaction because they did not know where to begin.
In an effort to provide a starting point, we will share a few questions that you should ask yourself when you are trying to put together an estate plan outline.
Will your estate be exposed to taxes?
Generally speaking, a direct inheritance is not considered to be taxable income by the IRS or the state tax authorities. This would apply to bequests that are distributed through the terms of a will along with insurance policy proceeds.
Distributions of the principal in a living trust would not be taxable. However, you would have to claim distributions of the trust’s earnings. The beneficiary of a Roth individual retirement account can take tax-free distributions. Traditional individual retirement account beneficiaries have to pay taxes on the income.
Appreciated assets get a stepped-up basis, which means that the inheritor would not pay capital gains taxes on the appreciation that accumulated during the life of the decedent.
Most of the above is good news, but there is also some bad news if you have enjoyed a significant level of financial success. There is a federal estate tax that is applicable on the portion of an estate that exceeds $13.61 million. That rate is 40 percent.
There is no state-level estate tax in Oklahoma where we practice. There are, however, state estate taxes in 12 states. If you own valuable property in one of these states, the tax in that state would apply to your estate.
If your estate is going to be subject to taxation, there are legal steps you can take to mitigate your exposure. We can gain an understanding of your situation and provide the appropriate recommendations so you can make informed decisions and preserve your legacy.
Have you considered long-term care costs?
The majority of elders will need living assistance eventually. Many elders will reside in nursing homes. According to Genworth Financial, the median annual charge for a private room in an Oklahoma City area nursing home in 2024 is $97,000.
Medicare does not pay for the custodial care that nursing homes provide. Medicaid will cover this expense if you can gain eligibility. Since Medicaid is a needs-based program, you have to develop the right financial profile.
You can potentially use an irrevocable Medicaid trust to position your assets with future Medicaid eligibility in mind.
Have you executed advance directives for health care?
Your estate plan should include an incapacity planning component. You should create a living will to state your life support preferences. You can also use a durable power of attorney for health care to name someone to make medical decisions on your behalf.
In addition to the advance directives, you should address financial decision-making. If you have a living trust, you can name a disability trustee. You can add a durable power of attorney for property to name someone to manage property that is not held by a trust.
Are your loved ones ready to handle their inheritances?
You should consider the money-management capabilities of the people on your inheritance list. Clearly, minors cannot handle their own funds, so you have to use a trust or a custodial account to facilitate asset transfers to minors.
If you have an adult heir that is not good with money, you can include spendthrift protections. An incentive trust can be used to guide a person toward positive behavior. This is another area that you should discuss with an attorney from our firm if you have these concerns.
Schedule a consultation today!
When you get a general idea of how you want to proceed, it is time to work with an Oklahoma City inheritance planning attorney to actualize your vision. If that time is now, our doors are open.
You can schedule a consultation appointment if you call us at 405-843-6100, and you can use our contact form if you would rather send us a message.
We also have a Tulsa location, and if that one is more convenient, the number there is 918-615-2700.
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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