When Should I Start Doing Estate and Tax Planning?

Estate planning creates a legal framework to manage assets in the event of incapacity or upon death and should include tax planning to protect income and inheritances. A recent article from The Street, “Don’t Be a Grasshopper: The Importance of Proactive Tax and Estate Planning,” references Aesop’s fable of the Ant and the Grasshopper. The ants are always hard at work, preparing for winter, while the grasshoppers play all summer and starve when winter comes.

Fundamentals for estate plans include having an experienced attorney create a last will and testament to convey your wishes for asset distribution. This is also done through the creation (and funding) of trusts, which take assets out of your personal ownership and place them in a separate legal entity. One of the many benefits of trusts is that assets are distributed directly to beneficiaries, without needing to go through probate.

Other estate planning documents include a Power of Attorney, which designates another person of your choice to handle financial and legal decisions on your behalf if you are incapacitated. The Power of Attorney ends upon your death, so it is only used while you are living. Similarly, a Medical Power of Attorney, sometimes known as a Healthcare Proxy, is used to give another person, also of your choosing, the power to be involved with your medical care, speak with your health insurance provider, and be part of your health care decision-making.

Which estate and tax planning strategies you need will depend in large part upon the size of your estate. If you own a home, a car, and investment accounts, a will is needed to distribute your assets and different types of trusts may be needed. If the family includes a disabled family member, you should speak with an estate planning attorney about Special Needs Trusts. If long-term care is a concern, a Medicaid Asset Protection Trust may be helpful to protect your well-being as well as your family's.

Proactive planning can be a little more complex for those with significant wealth. Strategies like a Dynasty Trust or Irrevocable Trust may be needed for those whose estates reach estate tax exemption thresholds, which are likely to shrink considerably in the future.

When possible, communicate your wishes with the family so there are no surprises after your passing. Decide how transparent you can be with your children and grandchildren. In some families, this is accomplished with a series of family meetings. For others, holding a meeting in the estate planning attorney’s office with the attorney present to answer questions can be more productive.

Regardless of your estate size and family dynamic, taking the time to create or update an estate plan is a kindness to your loved ones. They’ll know you made an effort to prepare so they can celebrate your life and hold their memories close without the distraction of family fights or protracted court proceedings.

Understanding how estate and tax planning work is crucial for preserving your assets after your departure. At The Werner Law Firm, our estate planning attorneys can help you craft a strategy that maximizes the inheritance your family receives while minimizing the tax burden on your estate.

If you have any questions, schedule a free appointment with us through our online appointment page.

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Reference: The Street (September 3, 2024) “Don’t Be a Grasshopper: The Importance of Proactive Tax and Estate Planning”