Less than 30 percent of Americans under the age of 55 have estate plans, even though most know it is important.
Many procrastinate, or believe the process is very straightforward.
In fact, this is a gross oversimplification, and can cost your family time and money.
Don’t overlook long-term care costs.
We all know that some elders require nursing home care. However, may believe “it will never happen to me.” You can certainly take good care of yourself and hope for the best, but the statistics are eye-opening.
Seven out of every 10 seniors will require some form of living assistance, and over half of them will need professional care. Thirty-five percent of elders will reside in nursing homes at some point.
These facilities are very expensive, and Medicare does not cover the costs. These costs could significantly damage your legacy if you pay for the care out of your own pocket.
If you take the right steps in advance, you can develop a financial profile that will lead to Medicaid eligibility. This program covers long-term care, but requires divesting yourself of direct possession of assets at least five years before you apply.
This can be done effectively through the utilization of an irrevocable, income-only Medicaid trust. As the name suggests, you can receive income from the trust’s earnings until you apply for Medicaid. However, you cannot access the principal.
Consider the consequences of a disinheritance.
You want to think long and hard before you completely disinherit one of your children. If you take this step, they could contest the estate plan and make life difficult for the family.
Instead, you might consider leaving a modest inheritance through the terms of a living trust with a no contest clause. The clause will trigger the complete disinheritance of any beneficiary that challenges the terms of the trust. The child may not receive exactly what they expected, but they will probably accept your decision without filing a lawsuit.
Gain a complete understanding of estate tax parameters.
The federal estate tax can take a major chunk out of your legacy because it carries a 40 percent maximum rate. However, most are not exposed to the tax because there is an exclusion that can transfer a large amount tax-free.
The estate tax exclusion was $5 million, indexed for inflation, from 2011 to 2017. That changed with the Tax Cuts and Jobs Act. The Act established an $11.7 million exclusion for 2021. These parameters are subject to change by Congress, and a reduction of the exclusion is already established.
On January 1, 2026, the provision that set the record high exclusion will expire, and the exclusion will be $5.49 million. However, Congress has also introduced the For the 99.5 Percent Act which would set the exclusion at $3.5 million.
While Oklahoma has no estate tax, certain states have their own estate tax. If you own property in such a state, you may be subject to that state’s estate tax.
Another relevant change is on the table. The Biden administration wants to eliminate the step-up in basis for inherited appreciated assets that exceed $1 million in value.
As the laws stand today, if you inherit assets that appreciated during the life of the deceased, the assets receive a stepped-up basis. This means the beneficiary would not be responsible for any taxable capital gains that accumulated during the decedent’s life.
Access Our Estate Planning Worksheet!
We have a number of valuable written resources on this site, and one of them is our estate planning worksheet. You can learn a lot if you take the time to go through it, and it is offered free of charge.
To get your copy, visit our Oklahoma City estate planning worksheet page and follow the simple instructions.