There is no one-size-fits-all estate planning document, and no one document is inherently more important than any other. It all depends on the circumstances.
When you plan your estate, you facilitate future asset transfers. Some people are exposed to the federal estate tax. There is a $5.34 million exclusion or credit. Anything that you want to transfer that exceeds this amount is potentially subject to taxation.
Estate tax efficiency would be extremely important to someone who is exposed to the federal estate tax. Such an individual may use an irrevocable trust to mitigate his or her estate tax exposure. This document would be key, but the same document may be completely inappropriate for someone who does not have estate tax exposure.
To provide another example, let’s say that you have one child, a son, who is a spendthrift. You have a daughter who is a fantastic money manager. You could protect your son’s interests by including certain stipulations within a spendthrift trust. This would be important for him, but there would be no need to create this type of trust for the benefit of your daughter.
Financial documents are important, but every estate plan should also have an incapacity planning component. Durable powers of attorney are typically used to account for the possibility of incapacity late in your life.
With these documents you name agents or attorneys-in-fact who would be empowered to handle your affairs in the event of your incapacitation.
An incapacity plan should also include a living will/advance health care directive. A living will is used to record your wishes regarding the utilization of life-sustaining measures.
A comprehensive financial plan will also address potential long-term care costs. Most seniors will require assistance with their activities of daily living, and Medicare does not pay for long-term custodial care.
This care is extremely expensive.
Medi-Cal is a government program that will pay for long-term care. Your holistic financial plan could include a Medi-Cal planning component. If you plan ahead wisely, you can get the care that you need while you preserve assets for the benefit of your loved ones.
Make Informed Decisions
The average layperson is not going to have a comprehensive understanding of the documents that are used in the field of estate planning, and this is understandable.
When you work with an estate planning professional, you can become apprised of all of your options, and you can ultimately make informed decisions.
If you would like to discuss your own unique situation with a licensed and experienced estate planning attorney, send us a message through this link to schedule a free consultation: San Jose Estate Planning. We also invite you to attend one of our free estate planning seminars: Free Seminars and Workshops.