Establishing a good estate plan is one of the most important things that an adult can do. However, leaving your legacy behind to children, loved ones, or even friends is not easy. There are many loopholes to navigate, and the legal system does not make it any easier.
Making a Will
This is the foundation of estate planning for any age and simple wills may seem easy to draft on your own. However, as you get older and accumulate more possessions, it is important for you to consider using an attorney. Even a seemingly simple situation could involve issues someone doing their own planning would not even think about. For example, long term care costs are extremely high with $11,000 a month being a reasonable amount to pay. When you are drafting a will later in life, this potential cost must be considered and a good attorney can guide you on how to plan for it. Or, while estate taxes are presently non-existent in many states, or only kick in at very high levels in others, those taxes may come back in the not too distant future. This is another area where guidance is important not only for the present day but for potential changes in the future.
Power of Attorney
It is morbid to think about, but what happens if you become incapacitated? Who will make decisions for you?
A power of attorney (POA) is a legal document that designates someone to handle your affairs if you cannot. There are many different types of powers of attorney that give your attorney-in-fact (the person making decisions for you) varying levels of control. With the proper POA, you can control your destiny and make sure the right decisions are being made.
You can create a POA for financial matters and one for healthcare. The person you choose should be someone you trust. Once signed and notarized, the POA will go into effect in the appropriate circumstances. For example, a health care POA allows your attorney-in-fact to make medical decisions for you if you become unconscious, mentally incompetent, or otherwise unable to make decisions on your own.
A living will is another important document to have. It deals with medical issues also but focuses on specific directions for end-of-life care. For instance, you can put in directives to “pull the plug” under certain circumstances. Since the living will is closely correlated with the health care power of attorney, some states allow you to combine both into what is called an advance healthcare directive.
There are several types of taxes that can affect your estate when you pass away. Three important ones are the estate tax, inheritance tax and capital gains tax.
Estate taxes are on the federal and state level. For many states, there aren’t any estate taxes at all right now. And, where they do exist, the exempt amount is quite high. That means your estate will not be taxed if it is valued under a specific amount. On the federal level, for example, only estates valued at more than $11.4 million will get taxed. And, it is not the entire amount, just what is over $11.4 million.
The inheritance tax, on the other hand, is automatic when a certain “class” of individuals receives assets from your estate. In New Jersey, inheritance taxes apply when assets from a decedent’s estate are given to nieces/nephews, friends, and cousins, to name a few “classes of people” who get taxed when they receive money. The tax can be either be 15% or 16%, depending on the amount given. Finally, a capital gains tax applies when an asset is sold, such as property or stocks and bonds. This tax hinges on how long the asset was held and it can be anywhere from 0% to 37%.
For all these reasons and many others, I will reiterate that an estate plan is one of the most important things an adult can have. And, when someone is older, it is even more important to put a plan together with help so that you get it right. If you are interested in learning more about how our office can assist, please set up a free consultation.