Benjamin Franklin once said, “by failing to prepare, you are preparing to fail.” This applies to all aspects of life, including planning for the end of your life and ensuring that your assets are protected and your family is taken care of when you are gone. However, what is even more important than completing estate planning in general, which tends to be important legal matters that most people tend to put off for another day, is failing to change your estate plan after major life events.
The following is a list of five life events that warrant changing your estate plan:
- Divorce. This is a subject that many of us do not want to ever talk about or even think about. However, divorce is part of our society, and unfortunately, some of us may experience this unfortunate event during our lives. In addition, this is one of those events that require an update to your estate plan. No one would want to have their former spouse in charge of important financial and health care decisions, and no one would want improper planning and failure to update an estate plan to lead to a difficult court proceeding after death.
- Birth of Grandchildren. The birth of your first grandchild or grandchildren, and/or all of your children being grown and out of your home is an important time to update your estate plan. For example, you may want to leave an inheritance for your grandchildren after your death.
- Marriage of Your Children: After your adult child and/or children get married it may be an important time for you to update and change your existing estate plan. For instance, through the establishment of a certain type of trust with the proper trust language, you can make your children’s inheritance divorce proof and provide protection from creditors. If you have concerns regarding a possible divorce in your child’s future and/or your child has shown to be irresponsible with finances and you are concerned with protecting his or her inheritance from creditors, this may be an appropriate time to speak with an estate planning lawyer on protecting your children’s inheritance from future divorce and creditors.
- Estate Now Exceeds $10,500,000. Although, this is usually only going to apply to 1% of the United States population. However, if over time you find that you and your spouse’s assets exceed $10.5 million, it may be time to update your estate plan and implement some tax planning strategies. The federal estate tax currently only applies to those with estates exceeding $5.25 million in value. In addition, due to recent tax legislation, portability allows you to use the first spouse’s unused estate tax exemption of $5.25 million, and effectively create a $10.5 million estate tax exemption. However, if your estate exceeds the estate tax exemption, your estate may be taxed at your death at the top rate of 40%. In addition, you should keep in mind that Tennessee still has the inheritance tax with an exemption of $2 million until the inheritance tax is completely phased out in 2016.
- Anticipation of Future Nursing Home Costs. Possibly the most important time to update your current estate planning legal documents is when you begin to anticipate future long term care costs and nursing home costs. The Medicaid rules require that you have no more than $2,000 worth of assets in your name in order to qualify for long term care Medicaid. Therefore, if you have substantial assets in your name including retirement accounts, 401(k) accounts, bank accounts, annuities, and other assets, you will be required to spend those on your long-term nursing home care. The average annual cost for nursing home care is approximately $60,000 to $85,000 per year. Therefore, it is quite possible for those to lose all of their assets and everything they have worked so hard for in just a few years of nursing home care. However, if you plan your estate accordingly and establish what is called an Irrevocable Medicaid Trust and transfer all of your assets into the trust, while staying out of the nursing home for at least five years, you will be able to avoid losing all of your assets to nursing home cost and expense in your later years. However, Medicaid trust planning has very specific rules. Therefore, it is important that you speak with an estate planning lawyer to determine if this type of planning makes the most sense for you and your family.
If you have questions regarding estate planning, protecting your assets while your alive, and providing a smooth transition for your family while protecting your assets for your loved ones after you die, please attend one of our many free events held each month throughout the greater Nashville area. I can assure you that you will leave having most, if not all, of your questions answered!