Many Americans assume that estate planning is only for those who are wealthy enough to face estate taxes. It is true that the wealthiest Americans could face estate taxes after they pass away. However, estate planning is about much more than just taxes. There are a number of other issues and expenses that can impact the amount of wealth that is left to your spouse, children or other loved ones.
The good news is that these expenses can usually be managed through a variety of different tools. Wills, trusts and other planning documents can help you protect your assets and maximize the amount of your estate as it is passed on to your heirs.
The only way to utilize these tools, however, is to develop an estate plan. More than 60 percent of Americans haven’t even taken the first step by creating a will.1 If you’re among that group, now may be the time to take action. Even if you have a will, you may be exposed to other risks that could threaten your legacy.
Below are three costs that can drain your assets in the final years of your life and after you die. If you haven’t addressed these issues, consider doing so soon.
Just because your estate value isn’t high enough to face estate taxes doesn’t mean it won’t face any expenses after your death. Most estates must go through a process called probate. This is the legal process for settling an estate. It usually involves the probate court and the estate executor paying debts, filing tax returns, liquidating assets and notifying potential heirs.
The process can take months and can generate a substantial amount of administrative expenses. If your estate doesn’t have much liquidity, your heirs may be forced to sell assets to cover the legal and administrative fees. Even if you have a will, your estate will still likely go through probate.
However, there are ways to minimize the impact of probate. You can use joint ownership titling or maximize assets that have beneficiary designations, such as IRAs, life insurance policies and annuities. You can also use a trust, as assets in the trust are usually exempt from probate.
According to the U.S. Department of Health and Human Services, 70 percent of all 65-year-olds will need long-term care at some point in their lives.2 This care is usually provided in the home by a health aide or in a facility. It can last for years and may cost several thousand dollars a month.
Very often, long-term care is needed during the final months or years of a person’s life. Many people are forced to spend down their assets on long-term care before being able to qualify for Medicaid. If you have to do that, there may not be many assets left in your estate to pass to your spouse or children after you pass away.
There are a number of ways to pay for long-term care, but one of the most effective is long-term care insurance. These policies cover long-term care costs if you need assistance at any point. Many policies also have a life insurance component, so a death benefit is available to your loved ones if you end up not needing the long-term care coverage.
Incapacitation occurs when you are physically unable to make or communicate your own decisions. It is often caused by strokes, Alzheimer’s or other serious conditions. The risk is that others will make your financial decisions for you, and they may make decisions that endanger your assets and your estate.
You can minimize this risk by using planning tools such as a power of attorney or a living trust. These documents allow you to designate a trusted decision-maker on your behalf and to provide that person with instructions.
Does your estate plan need some work? Let’s talk about it. Contact us today at Sprouse Financial Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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