What is an Estate Plan and do I need one?

A good estate plan provides for both what happens after your death and during a period of incapacity or disability. You do not need to be wealthy to have an estate plan. In fact, just about everyone could benefit from an estate plan. Some of the questions you may ask yourself are:

  • Who will manage my finances and make my medical decisions if I am unable to do so?
  • Who should receive my estate and how much should they get? Should they be given the assets outright or will they require someone to manage the assets for them?
  • Who will administer my estate to carry out my wishes and maximize the inheritance to my loved ones?

To adequately protect you and your family in the event of disability or death, it is important to have a well thought out and comprehensive plan. There are four documents in a basic estate plan.

  1. Last Will and Testament. A Will passes property in your own name alone that does not have a beneficiary designation, is not jointly held with another or is not held in trust. If you have assets in your name alone, there will be probate administration of your estate. A Will is also where you name guardians for minor children.
  1. Revocable Living Trust. Trusts are established for many reasons and by persons of all income levels. With a self-trusteed trust, you place assets in a trust managed by you for your own benefit. In addition, you name a successor trustee to take over if you become incapacitated to manage the trust assets for your continued benefit. Upon your death, your successor trustee distributes the trust assets to the persons you name in the trust in a private manner outside of the probate court. Thus, you save the time and expense of probate administration of your estate. Assets may continue in trust after your death to provide for the care and support of your children until they are financially and emotionally mature enough to manage their own inheritances. Revocable trusts can be amended by you at any time or revoked if you do not wish to have the trust anymore.
  1. Durable Power of Attorney. A Power of Attorney is a legally binding document by which you authorize another person to act on your behalf to manage your finances. It avoids the necessity of someone having to go to the probate court to be appointed your Conservator if you become incapacitated, who may or may not be the person that you would choose.
  1. Patient Advocate Designation. Also known as a medical power of attorney, the Patient Advocate Designation is a Michigan document which allows you to appoint a patient advocate to make medical decisions for you, including termination of life support, if you are unable to make these decisions for yourself. Without it, your loved ones may be forced at the time of a medical crisis to petition the probate court for the appointment of a guardian for you.

Article written by Karen L. Stewart, Attorney and Counselor. For more information, please see my website, www.customestateplans.com.

Consider State Taxes When Deciding Where to Live in Retirement

When you retire, you may consider moving to another state — say, for the weather or to be closer to loved ones. State taxes also may factor into the equation.

Identify and Quantify All Applicable Taxes
It may seem like a no-brainer to simply move to a state that has no personal income tax, such as Nevada, Texas or Florida. But, to make a good decision, you must consider all of the taxes that can potentially apply to a state resident, including:

• Income taxes;
• Property taxes;
• Sales taxes; and
• Estate taxes.

For example, suppose you’ve narrowed your decision down to two states: Texas and Colorado. Texas currently has no individual income tax, and Colorado has a flat 4.63% individual income tax rate. At first glance, Texas might appear to be much less expensive from a state tax perspective. Not necessarily. The average property tax rate in Texas is 1.93% of assessed value, while in Colorado it’s only 0.62%.

Within the city limits of Dallas, the property tax rate is a whopping 5.44%. So, a home that’s assessed at $500,000 would incur an annual property tax bill of $27,200 if it’s located in Dallas, compared to only $3,100 in Colorado. That difference could potentially cancel out any savings in state income taxes between those two states, depending on your income level. Of course, there are other factors to consider in any move, including taxes in the exact locality in the state.

If the states you’re considering have an income tax, also look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

Excerpt from EHTC CPAs and Business Consultants Newsletter dated 1/12/2017