(Wills and Trusts)
The objectives of an Estate Plan are as varied as each person’s individual circumstances. One person may need to account for minor children, while another may have the need to avoid potential estate taxes. Aside from designating who is to receive what from your estate, a couple of the most common goals of an Estate Plan are to provide for your incapacity, avoid probate, provide for children, and avoid taxes.
Providing for Incapacity
If you become incapacitated, you will need someone else to manage your financial affairs and/or healthcare decisions, whether it be a spouse, adult child, or someone else. Without prior planning, the person may be required to petition a court to have you declared legally incompetent before being allowed access to your finances. In order to facilitate the ability of someone to take-over you finances, you need to legally designate the person to fully vest the designated person with authority over your finances. Likewise, if you become incapacitated, you may not be able to make healthcare decisions for yourself. A Power of Attorney for Healthcare allows you to appoint someone you trust to make healthcare on your behalf if you lose the ability to decide for yourself.
Unless you’ve taken specific steps, any property you leave to your family may have to go through probate. Probate is a court proceeding where the court supervises the administration of your estate. Unfortunately, probate can be an expensive, time-consuming process. Also, because probate is a public court process, it is open to the public. With a proper Estate Plan in place, you can structure your assets so that your family receives your assets in a private, prompt, and inexpensive manner without the hassles and expenses of probate.
Providing for Children
Children often present special circumstances which are often desirable to address. An Estate Plan can designate the people you'd like to manage your assets for your children until they are old enough to receive them and under what circumstances they are to manage the assets. Often people wish to have their assets remain under the control of a nominated person to be distributed for the benefit of their children until a certain time when they believe the children will be able to properly manage the finances themselves. The time and amounts of the distributions of the assets to the children can be based on age, behavior, education, or any other number of factors. Without an Estate Plan, children usually receive all of assets upon reaching the age of 18 and often times before they have the maturity to properly handle them.
Your Estate Plan may also designate who you’d prefer be the guardians for the physical custody of your children in your absence. The guardians may or may not be the same person or persons who are to manage the finances for the children.
Depending on the amount of your estate, estate taxes may be due upon your death. Due to constant changes in the law, the specific amount which triggers the tax during any given year has presented somewhat of a moving target. In the last 25 years, the trigger amount has ranged from $600,000 (from 1987 to 1997), to no estate tax in 2010, to over $5 million for 2015. The trigger amount for Illinois’s estate tax is even lower - $3.5 million for 2015. Equally unfortunate is that rate that kicks in starts at 18% and quickly rises to over 30%. An Estate Plan can implement strategies to reduce or eliminate some of these taxes.
The skyrocketing cost of nursing homes and long-term care has made planning evermore important for middle-class seniors. With some rates reaching above $75,000 per year, a significant portion of one’s life savings can be wiped out quickly. Purchasing long-term care insurance can provide some peace of mind, however, many will still have to resort to Medicaid in order to pay for their care. Medicaid pays for nursing home care for those with limited financial resources. However, if you give away assets in order to qualify for Medicaid, you will be penalized. With prior planning, an Estate Plan can defray some of the financial hardships that can accompany long term nursing home care while preserving the ability to qualify for Medicaid assistance.