Estate Planning Basics for Senior Citizens

Senior citizens may not always realize the role of estate planning in the life of their family. They usually assume that their children will inherit everything they have. But there is more to know.

In case they pass away, they want to fulfill their final wishes. An estate plan will give them that peace of mind that their loved ones will inherit their assets the way they wanted.

Without an estate plan, the inheritance law of the state applies, and they would not like the rules of transferring the asset. And without an heir, the state will confiscate the property.

What is Estate Planning?

Nearly everyone has an estate; it includes everything you possess that includes your car, home, bank accounts, investments, life insurance, furniture, and belongings. Regardless of how enormous or how modest it is everyone shares something in common – they can’t take their possessions to their grave.

An estate planning attorney will provide you guidance to have that peace of mind that your property documents are prepared according to your wishes. State laws are very specific, and the use of words could be very complicated if you are not familiar with the language. You have well-meaning intentions, but an innocent error can create problems for the beneficiaries.

Key Components of Estate Planning

Death is a topic that people don’t want to talk about, it strikes fear in people’s heart, but it is unavoidable. We don’t want to think about what happens after we pass on, but it is important to do so. Setting an estate plan will guarantee that your family’s financial security is taken care of when that day comes. Here are the four key components:

Will

A will specify your instructions after your demise. The assets will go to the names of the people mentioned in the will. Any assets in your name will go through the state’s probate process before it can be allocated to the heirs. Probate is expensive; there are legal and executor fees and court costs and can take anywhere from nine months or longer to resolve.

Living Will

A living will is a directive by a terminally-ill person that states their wishes for medical care. It is a valuable document to household members and medical professionals in case they are unable to communicate their instructions. The authority of the living well ends when the person dies.

Power of Attorney

A power of attorney gives another person the authority to make decisions in place of the assignor. The decisions include financial, medical care, property management, and daily life issues.

Trust

A trust is a legal tool to hold assets for a beneficiary based on the wishes of the grantor mentioned in the legal agreement. The trustee is the legal administrator who controls the trust agreement. Usually, the beneficiaries are individuals or charitable institutions that benefit from the income of the property and gains control of the property upon the grantor’s demise.

Tax Reform and Estate Planning

Here is a basic chart showing Federal Estate Tax under previous law compared to the new law.

The most noteworthy adjustment in the 2017 Tax Reform Act is the exemption amount. This has a significant increase from former figures, $11.18 million per individual and $23.36 million for married couples for 2018. By 2020 an individual’s tax exemption is $11.58 million.

Gifted heirs will not be imposed Federal estate taxes on amounts under the limits during the grantor’s lifetime or after death.

However, these rules expire at the end of 2025; the exemption amounts will return to its previous levels. The increase in generation-skipping tax (GST) will also expire in 2025.

The increases in exemptions in the federal estate tax and the GST is temporary and will end in 2025. Grantors can give more to their heirs and are exempted from paying estate taxes.