What The Wealthy Know About Estate Planning That You’re Missing Out On

Sep 1, 2022

There’s a common misconception that estate planning, and especially trusts, are only for the very wealthy. This couldn’t be further from the truth – you don’t have to own a sprawling estate to have an estate plan, and trusts can be used for much more than sheltering money in the Cayman Islands. Today, we’re bringing to light some of the useful tools you can incorporate into your estate plan to maximize its benefits.

Standalone Retirement Trusts

Standalone retirement trusts ensure that your retirement funds, (deferred tax funds such as IRAs and 401ks) are transferred to your loved ones in the most protected, tax-advantaged way. These trusts have three primary purposes; (1) to ensure your spouse gets an income stream during his or her lifetime, but that if he or she remarries, your retirement still goes to your kids or other named beneficiaries and doesn’t go to that second spouse; (2) ensuring the trustee you named for your minor children’s inheritance has access to the retirement assets and that your instructions about their use apply, and (3) ensuring your adult beneficiaries receive the retirement funds as their separate property, rather than having it roll over in an inherited IRA with no creditor protections, and that may be considered marital property they are forced to share with a divorcing spouse. Stand-alone Retirement Trusts ensure that your retirement accounts continue to qualify for all the benefits of tax deferral, but also benefit your loved ones in a structured way that comports with your values.

Life Insurance Trusts

Whereas standalone retirement trusts are for ensuring your instructions and protections apply to retirement assets, life insurance trusts are purely for reducing taxes. In Oregon, each individual can pass $1 million to the beneficiaries of their choice when they die, tax-free; every dollar over that $1 million is subject to estate tax. Life insurance trusts are created to hold your life insurance policies so they don’t count as part of your estate upon death. For example, if you own a home, retirement accounts and other assets that are worth $1 million and you also have a $1 million life insurance policy in your own name, when you die you would owe just over $100,000 in estate tax because your estate would be $2 million. If you put the life insurance policy into an irrevocable life insurance trust (ILIT) instead, it wouldn’t count as part of your estate and you would save $100,000 in taxes! If you own substantial life insurance policies, ask us how an Irrevocable Life Insurance Trust (ILIT) could save your estate money.

Medicaid Asset Protection

Many people proudly pay off their home, then later in life find themselves in the position of not having sufficient income or other cash assets with which to pay for end-of-life care. They’re “house poor”. The good news is that if you find yourself in this position, the State has funds available to help you through the Medicaid program. The bad news is that many states recoup the costs of the care provided from your estate. Most often, this is done by filing a lien against the home after your death. Because a Medicaid asset protection trust effectively removes the home from your estate, it can prevent a Medicaid lien from attaching to the home. You’ll still have the ability to live in your home and sell it if necessary, but with the added protection from Medicaid and the ability to ensure the home, or remaining proceeds from the home sale are passed on to your chosen beneficiary. There are very strict rules governing the effective use of this kind of trust. If you think you may find yourself in this situation, or you worry your parents or other loved ones will find themselves in this situation, contact our office for additional information about whether a Medicaid Trust is the right tool for you.

Prenuptial Agreements

Prenuptial agreements have a bad reputation, most of which is undeserved. A prenup can do a lot more than protect one party in a relationship from having to share their wealth with the other. At its best, a prenup clarifies the agreement between two people about how they will manage assets during their relationship, what happens if one or the other wants to end the relationship, and what the expectations are when each of them dies. If, for example, your soon-to-be spouse has a significant amount of debt, a prenup can ensure that your debts are kept separate, which would prevent creditors from attempting to collect from your assets in the event of their death. A good prenup should benefit both parties: it not only preserves separate assets but also contains promises you make to provide for and protect each other. You’re able to define almost any agreement for the division of property in a prenup, so they’re very powerful, flexible tools for putting the terms of your relationship in writing and preventing undesirable outcomes. If you’re contemplating marriage, you should negotiate a prenup well before the wedding. We have experience helping clients navigate this potentially emotional conversation successfully. We’d be happy to help you too!

Get Started On Your Plan Today
These are only some of the benefits that an estate plan can provide. If you’re ready to get started on a plan that’s tailored to your needs, get in contact with our team today to discuss what we can do for you.

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