You may be frozen with inaction when it comes to estate planning. This is probably because you simply do not know where to start. Indeed, a lack of information can be a stumbling block. We will provide three tips in this post that will help you plan your estate properly.
Don’t be overly concerned about taxation.
A lot of people envision a complex web of tax challenges that must be addressed. In reality, it is very likely that your estate will be transferred tax-free. Yes, there is a federal estate tax, but very few families have to be concerned about it.
Why is this the case? There’s an estate tax exclusion that can be used to transfer a certain amount tax-free. Any estate tax would potentially be levied on the remainder. In 2023, the federal estate tax exclusion is $13.61 million, and the top rate is 40 percent.
There are 12 states in the union with state-level estate taxes, but Oklahoma is not one of them. However, if you own property in a state that has its own estate tax, it would apply to you as an Oklahoman if its value exceeds the exclusion in that state.
The state-level exclusions are much lower than the federal exclusion. The lowest is $1 million in Massachusetts and Oregon. Connecticut has the highest exclusion, matching the federal figure.
An inheritance is not considered to be taxable income by the IRS unless you are receiving distributions of earnings that are generated by assets in a trust. If you inherit appreciated assets, you are not required to pay capital gains taxes on the appreciation.
Beneficiaries of a Roth individual retirement account do not pay taxes on the distributions, but distributions to beneficiaries of a traditional account are taxable.
A simple will may not be the right asset transfer vehicle.
The most commonly held misconception in the estate planning realm is the idea that a simple will is the only estate planning document you need unless you are extremely wealthy. Ironically, the estate administration process is not simple at all when a will is utilized.
Probate is the legal process of estate administration, and it takes place under the supervision of a court. Though there are some exceptions for small estates, a will would be admitted to probate. As a result, a time-consuming process would begin to unfold.
In addition to the fact that the inheritors have to wait it out, probate expenses reduce the value of the estate. Plus, interested parties can access probate records to dig into the details.
Aside from the drawbacks of probate, you would be allowing for the distribution of lump sum inheritances. This may be a source of concern if you have someone on your inheritance list who is not good with money.
The revocable living trust is a very viable alternative that offers a host of different benefits. One of them is the avoidance of probate. It is not necessary when a trust is being administered.
After your passing, the trust will become irrevocable. The assets in the trust will be protected from the beneficiary’s creditors. When you are establishing the terms, you can instruct the trustee to distribute a certain amount each month, or you can dictate some other incremental distribution arrangement.
This is one type of trust that is very useful in a general sense. There are other trusts that can serve specific purposes. You should become apprised of your options so you can make the right decisions.
Prepare for possible incapacity.
The last tip that we will share revolves around a rather disconcerting subject. A significant percentage of elders experience cognitive impairment late in their lives. In addition, physical ailments can make it impossible to communicate your decisions.
To account for possible incapacity, you should execute advance directives for health care. One of them is a living will. You use this document to state your life support preferences.
A durable power of attorney for health care should be added to name someone to make medical decisions on your behalf. To give your representative the legal right to communicate with your doctors, you should include a HIPAA release.
To account for financial decision-making, you can execute a durable power of attorney for property. Plus, if you have a living trust, you can name a disability trustee to assume the role if it ever becomes necessary.
We are here to help!
If you are ready to work with a Oklahoma City & Tulsa, OK estate planning attorney to develop a custom-crafted plan, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 918-615-2700.
We also have an office in Oklahoma City, and the number there is 405-843-6100.
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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