We recently wrote about several widely misunderstood estate planning concepts. Today we will continue to review several other estate planning issues or terms often found confusing by the general public. As with any legal issue, it’s always best to talk to your lawyer if you are unclear or need advice on how a particular legal concept or idea might apply to your situation.
Commonly Misunderstood Estate Planning Terms: Your Estate
The idea of an ‘estate’ is something people associate with a large home or property. This is understandable, but also potentially harmful, especially if this misunderstanding leads you to avoid crafting an estate plan because you don’t think you have an estate.
The reality is that everyone, regardless of their level of personal wealth, has an estate. In the legal sense, an estate is simply the property or legal concerns you leave behind after you die. Your estate plan, therefore, is simply a collection of tools that allows you to control what happens to your estate.
Commonly Misunderstood Estate Planning Terms: Trusts
Along with the idea of having an estate, a lot of people associate a trust with something that only rich people have. After all, aren’t ‘trust fund children’ a rich person’s concern?
Absolutely not. A trust is something anyone can create, utilize and benefit from. In fact, there are so many kinds of trusts that even a simple estate plan might rely on two or more of them.
A trust is somewhat like a tiny corporation. When you create the trust, you transfer property to it and the trust becomes its legal owner. Since you create the trust, you also get to determine how it works and who gets to use the trust property. Because the trust can continue to exist even after you die, it provides you with a wide range of options when it comes to controlling your estate.
Commonly Misunderstood Estate Planning Terms: The Death Tax
One of the reasons many people first talk to an estate planning lawyer is their concern about the so-called ‘death tax.’ Some assume this tax applies to everyone and that you are taxed when you die. This isn’t true.
The federal estate tax only applies to you if you die with assets (your estate) worth more than $5.43 million. There are no state-level estate taxes in either Kansas or Oklahoma. Beyond that, even if you leave behind an estate that might be subject to estate tax, your estate will pay the taxes before distributing any property to inheritors, so neither you nor your family will ever have to pay them. With prior proper planning, even these estate taxes can often be eliminated or significantly reduced.
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Parman & Easterday