Estate Planning
Rick Damkroger talked about "Estate Planning." You might ask, "What is Estate Planning?" The process of ordering one’s affairs to facilitate sound decision making upon incapacity and the orderly and tax efficient transfer of assets at death.
Many people do put off getting their estate in order, and then their heirs wondering about who is getting what or why did they put it off. Why is it important to plan your Estate? One of the reason it gives you the opportunity to dictate how your assets will be distributed, rather than have the state do so for you. It gives you control the timing at which your assets will be distributed. You can work on a tax plan strategy to be implemented that is suitable for your situation. If you have minor dependents, it would give you an opportunity to nominate guardians to take care of those minor dependents. It gives you the opportunity to select person(s) who can manage your affairs upon your incapacity or death.
An estate goes through probate court. What is probate? It is a court supervised process in which an estate is administered. There are benefits and drawbacks to probate. The benefits of probate are finality and court supervision. The drawbacks to probate is there is sometimes a delay and it cost you more. Probate court's procedure can be public in nature. Many times the probate procedure can be published in a local newspaper. Yes, there are ways you can avoid going through probate court. You can do a "Joint Tenancy" which means joint ownership with incidental right of survivorship or you can "Tenancy in Common" which means joint ownership without incidental right of survivorship. There are some pitfalls to "Joint Tenancy" which include inconsistency with other estate planning documents, it brings exposure to creditors, it can cause unexpected disinheritance of grandchildren if child predeceases a parent and it can cause undesired tax consequences.
You should have a designated beneficiaries so that assets pass "outside" properly according to the terms of will or trust, they help in making special provisions for contingent shares for any minor children. You should periodically review your beneficiary designations because one of those beneficiaries could be incapacitated, or unable to serve as a beneficiary for other reasons. Your beneficiaries should be liable to transfer any deeds upon death.
You can consider a "Trust" or outright Trust if you wish. This can help with non-tax considerations, you can make out a Trust for the benefit of spouse or one for your children. In a Trust you do some supplemental needs planning. Here is some terminology on "Trust."
Settlor/Grantor: transferor of property; Trustee: Person who holds legal title to property for benefit of another; Beneficiary: recipient of property; Testamentary: This is effective upon death; Inter Vivos: effective now; Revocable: can be changed; and Irrevocable: cannot be changed.
Trust Agreements and Administration - A Trust Agreement defines the rights retained by Grantor/Settlor, gives the Trustee the power in managing a trust property, it helps the Trustee a method, timing and manner in which he can distribute the trust property to Beneficiaries. This is done upon the death of the Grantor.
Taxes:
The following Taxes should be considered when you are planning your estate. Federal Estate Tax, Federal Gift Tax, Federal and State Income Taxes, Federal Generation-Skipping Transfer Tax, Nebraska Inheritance Tax. When it comes to Federal and State Taxes you need to look out for IRAs and Employer Sponsored Retirement Plans, Traditional vs Roth IRAs, and SECURE Act. You need to know basis considerations, carryover basis for gifted assets, stepped-up basis for inherited assets, and watch out for potential changes to these rules!
Nebraska Inheritance Taxes:
Class 1 Beneficiaries
•Includes Parents, Grandparents, Siblings & Issue
•1% Tax on Anything Over $40,000
Class 2 Beneficiaries
•Includes Aunts, Uncles, Nieces, Nephews & Cousins
•13% Tax on Anything Over $15,000
Class 3 Beneficiaries
•Includes Everyone Else
•18% Tax on Anything Over $10,000
There are a few documents that are very important particularly if for some reason you became unable to live alone, or became incapacitated. Those documents should include the Durable Powers of Attorney, Advanced Medical Directives, Powers of Attorney for Health Care, ad Living Wills. Many doctors today ask you about the Powers of Attorney for Health Care and Advanced Medical Directives so that they know exactly what your wishes are and you should let your Durable Powers of Attorney know what you wishes are too.
Hopefully, some of you have already done your Estate Planning for it is never too late to get it done.