With an effective estate plan, seniors can manage future expenses and give financial gifts to loved ones and other beneficiaries while controlling the distribution of their wealth. An estate planning law firm assists seniors with a wide range of estate planning documents—from wills and trusts to advance directives and powers of attorney. Planning for the future provides protection and peace of mind, so it becomes increasingly important to seniors as they approach their twilight years.
Now, finding estate planning attorneys in your area has never been easier. Check out our Resource Hub, and you’ll find detailed referrals for estate planning lawyers in your area. With this free online resource, you can book your first consultation and get started with an effective estate plan as soon as possible. Remember, it’s never too early to start developing an estate plan, as you never know what the future might bring.
According to a recent survey, only about one-third of Americans have established estate plans. Even more troubling is the fact that the percentage of Americans with wills continues to decrease.
In this article, we’ll explore the various aspects of estate planning, the type of estate plan you might need, and how to find the best estate planning lawyers in your neighborhood.
Estate planning: a smart decision for seniors
What is estate planning?
Estate planning involves the end-of-life decisions a senior needs to make—with an emphasis on finances. The most readily recognizable form of estate planning is “who gets what” when a senior passes away, which is established primarily through wills and trusts. Distributing assets to beneficiaries can be surprisingly complex, especially if seniors have amassed a considerable fortune with a diversified portfolio of investments.
Estate law also involves important end-of-life decisions that have nothing to do with finances, such as advance directives, powers of attorney, and whether to be buried or cremated.
Here’s a breakdown of the various aspects of estate planning:
- Minimizing gifts
- Generation-skipping transfers
- Reduction of taxes
- Advance directives
- Durable power of attorney
- Health care proxies
- Living wills
- Health insurance
- Naming executors
- Organ donations
- Burial preferences
- Final wishes
- Do Not Resuscitate (DNR) orders
The “best” estate plan for each senior will depend on their unique needs and priorities, and the only way to determine the most effective estate plan is to consult a law firm with specialization in estate planning. During this consultation, an estate planner will assess your senior’s situation and provide targeted legal advice to carry out their wishes.
What happens if my senior doesn’t create an estate plan?
Seniors are often reluctant to approach the estate planning process for a number of reasons. Some may not want to be reminded of their own mortality, while others may believe their relatives are trying to swindle them out of their money.
While these concerns may be understandable, failing to create an estate plan can have dire consequences. If your senior passes away without a clear plan in place, their estate will be considered “intestate.” This means no one will have any control over how the assets are distributed among beneficiaries, and the probate court will simply follow a predetermined formula. The exact details of this formula may vary from state to state, and it’s known as “intestate succession.”
For example, in California, intestate succession follows these rules:
- If you die with children but no spouse, your children inherit everything.
- If you die with a spouse and no other surviving family members, your spouse inherits everything.
- If your parents are your only surviving family members at the time of your death, your parents inherit everything.
- If your siblings are your only surviving family members, your siblings inherit everything.
- If you pass with a spouse and one child or grandchild, your spouse gets half of your estate while the others take the other half.
The list goes on, and every possible eventuality is covered under state intestate law.
Unfortunately, intestate laws may result in outcomes that don’t align with a senior’s wishes. It could mean an estranged wife walking away with the family home, or a child with substance abuse issues inheriting money they’re not in a position to properly manage and protect. In cases where minor children are to receive inheritances, most states require trusts or custodial accounts. Even a relatively basic estate plan can bring peace of mind and help your family avoid these issues.
Isn’t estate planning only for rich people?
Estate planning can help people from all walks of life. Even if your senior doesn’t have millions of dollars in the bank, an estate plan reduces confusion and disputes after their death. Many seniors also own their own homes, and the increase in property values within the past few decades could mean they’re sitting on top of a small fortune.
Even if your senior is essentially penniless, they may still have important family heirlooms to pass on. Even if these items have no market value, their sentimental value can make them priceless to family members. In addition, estate planning can help seniors with nonfinancial aspects of estate law, such as medical proxies and advance directives.
Why would my senior need an estate plan?
Your senior needs to develop an estate plan if their health is beginning to deteriorate. At a certain point, they may become incapacitated and unable to make these decisions on their own. This is especially true if your senior is at risk for developing Alzheimer’s or dementia. That said, it’s never too early to start developing an estate plan. For instance, if a senior is a small-business owner, they will need an estate plan to legally establish what will happen to their business if they’re unable to continue to manage it.
Questions to ask yourself as you consider estate planning
- What is the total value of my senior’s estate?
- Is my senior’s estate in danger of falling into the wrong hands?
- Does my senior own a profitable small business?
- Does my senior have very clear opinions about end-of-life medical care?
- Does my senior have very clear views on burials or cremation?
- Are there minor children who would be potential beneficiaries?
What are the various aspects of estate planning?
A senior’s last will and testament is the most basic form of their estate plan, but it’s also one of the most important. Everyone needs a will, as it not only covers financial matters but many other important end-of-life decisions. With a will, your senior can decide who inherits various assets in their estate. Wills also prevent funds from falling into the wrong hands. With a careful strategy, seniors can reduce taxes with their will and ensure their loved ones do not encounter any headaches when inheriting their assets.
The most common type of will is a “testamentary will,” which is prepared by legal professionals and signed in the presence of witnesses. This type of will is very difficult to challenge in court after your senior’s death.
Wills can also facilitate charitable donations, which can help reduce taxes in some situations. While most people think wills are synonymous with high-value real estate properties, cars and jewelry, they may also include sentimental items like old photographs and quilts.
If your senior needs a more advanced type of estate plan, a trust is a solid care option. Trusts give seniors a considerable degree of control over how assets are distributed, and a trust can be incredibly effective in reducing inheritance taxes. Also known as “dynasty planning,” trusts are typically reserved for wealthier seniors with a considerable fortune to pass down to their beneficiaries.
Although there are many types of trusts, the basic formula remains the same:
Your senior’s assets are transferred into a trust, and a trustee then takes ownership of the trust. The trustee is not a beneficiary but rather a pre-appointed individual who is expected to act according to the wishes of the senior who established the trust. This system allows seniors to set up rules and conditions for beneficiaries before they inherit money.
For example, a senior might create a rule that states an alcoholic child can only receive her share of the estate after successfully completing rehab. If certain beneficiaries struggle to manage money, their shares can be distributed in small amounts over time, preventing wasteful spending. The possibilities are endless when it comes to trusts, and seniors can even set up “pet trusts” that ensure their animals are cared for after their death.
Appointing a trustee is an important decision, as these individuals have a considerable fiduciary duty. Your senior’s trustee should be someone highly responsible and trustworthy. Ideally, they should also have a strong degree of financial expertise—especially if they’ll be managing complex investments within the trust.
There are almost too many different types of trusts to list, but here are a few examples:
- Asset-protection trust
- Constructive trust
- Discretionary trust
- Directed trust
- Dynasty (generation-skipping) trust
- Express trust
- Fixed trust
- Grantor retained annuity trust (GRAT)
- Hybrid trust
- AB trust
- Implied trust
- Improvement trust
- Irrevocable trust
- Revocable living trust
- Offshore trust
- Simple trust
- Spendthrift trust
- Testamentary trust
- Unit trust
With help from an estate planning attorney, your senior can choose a trust that meets their needs and priorities.
What’s the difference between a revocable trust and an irrevocable trust?
Trusts can be either revocable or irrevocable. With a revocable living trust, the trustmaker (or “grantor”) can make adjustments to the trust while they’re alive, implementing updates as time goes on and circumstances change. This isn’t possible with an irrevocable trust, but you get additional risk protection by going this route. An irrevocable trust can preserve assets into the future, ensure continued support for an individual who may need it, and otherwise keep assets from creditors.
Inheritance and death taxes can be considerable in many states, and a major part of estate planning involves the minimization of these taxes. There are a number of potential strategies to consider, including:
- Gifts: According to U.S. tax laws, gifts are never taxable. This means seniors can avoid inheritance tax by simply providing beneficiaries with incremental gifts during their lifetime. That said, the maximum nontaxable gift per year is about $16,000.
- Retirement plans: Retirement plans such as 401(k)s and IRAs can involve trustee bank accounts that are transferred upon death with minimal tax obligations. An inherited IRA, whether given to a trust or individual, will still have an annual required minimum distribution (RMD), but only that portion will be taxed as income.
- Life insurance: Life insurance proceeds are not taxed, and this is why many wealthy families rely on life insurance trusts to reduce estate taxes. Life insurance can be “owned” by a trust, further minimizing these obligations. Life insurance has become an especially popular estate planning tool for the ultra-rich.
- 529 plans: If your senior wishes to provide funding to grandchildren for college expenses, 529 plans can be much more tax-efficient than many other estate planning tools.
- Charitable donations: By making charitable donations before their passing, seniors can significantly reduce estate taxes.
- Estate freezing: Estate freezing allows seniors to “lock in” the current value of their wealth while attributing any future growth to another party, further reducing taxes.
- Leaving your property to your spouse: Perhaps the simplest way to avoid inheritance taxes is to leave your property to your spouse in your will.
Keep in mind that unless your senior’s estate is valued at $2 million or more, they won’t have to worry about tax avoidance.
Health care decisions
Another important aspect of estate planning involves health care decisions. Seniors deserve the right to decide how they wish to leave this world, and a variety of estate planning documents ensure their wishes are respected even if they become incapacitated. This is collectively known as “advance care planning.”
According to a recent survey, only 36.7% of Americans had completed an advance care directive. This means that by the time most Americans become incapacitated, it will already be too late to take control of health care decisions.
Advance care planning options include:
- Advance directives: An advance directive is a written statement that lays out a range of wishes related to medical treatment. This includes which treatments the senior wants, which treatments they don’t want, and so on.
- Durable power of attorney: Durable power of attorney gives decision-making authority to another person when your senior becomes incapacitated. For example, if they gave power of attorney to their spouse, they would have to decide whether or not to “unplug” your senior from life support systems. Power of attorney is also sometimes called a “health care proxy.”
- Organ donations: Your senior can also make decisions about organ donation ahead of time. Whether a senior chooses for or against organ donation, these wishes will be respected.
- Do Not Resuscitate (DNR) orders: While assisted suicide is legal in many states, a potential alternative is a DNR order. This means that if your senior loses consciousness and starts to die, physicians and first responders will not be allowed to resuscitate them using CPR. This allows seniors to die on their own terms. Do Not Intubate (DNI) orders are similar, but they involve breathing machines instead of CPR.
- Burial preferences: While not strictly related to health care, seniors can also decide whether they want to be buried or cremated in their estate plan.
You can include your advance care planning decisions in a living will, and this type of will takes effect before the senior dies.
Questions about estate planning
What questions should I ask an estate planning law firm?
- How much experience do you have with estate planning?
- What are your qualifications? Do you have any designations such as Accredited Estate Planner (AEP) or Certified Estate Planner (CEP) from the National Association of Estate Planners and Councils (NAEPC)?
- What kind of tax avoidance strategies can we use?
- Does my senior need a trust?
- What kind of estate plan does my senior need?
Talking about estate planning
Talking about estate planning can be difficult, as this topic is linked with mortality and uncomfortable thoughts. Because of these factors, it’s important to broach the topic in a careful, considerate manner.
How to talk to family members about estate planning
Estate planning isn’t exactly cheap, so it might be difficult to convince other family caregivers this is truly necessary. If other family caregivers are doubtful, remind them what might happen if your senior becomes intestate upon death. You might also want to point out that beneficiaries might face excessive inheritance taxes without an estate plan in place.
How to approach the topic of estate planning with your senior
Estate planning can be a touchy subject among seniors. Many dismiss the topic with a wave of the hand, preferring not to confront their own mortality and procrastinating until the last possible moment.
It might be a good idea to avoid talking too much about money as you raise this issue, as your senior might get the wrong idea about your motives. Instead, make the discussion about advance care directives, medical decisions and burial preferences at first. From there, you can gradually start to bring up financial matters.
Questions to help a senior consider estate planning
- Do you really want the government to take your hard-earned money via inheritance tax?
- Don’t you want to make sure your grandchildren have enough money for college?
- Don’t you want to leave this world on your own terms?
- I know you’re healthy now, but by the time you become incapacitated, it’ll be too late for estate planning. Shouldn’t you get ahead of that?
Paying for estate planning
How much does estate planning cost?
The cost of hiring an estate planning lawyer varies depending on a number of factors.
If you’re simply establishing a will, you can expect to pay a relatively low sum of money—especially when you consider how much this basic estate planning tool can save you. Some estate planning law firms may offer a flat fee for some types of estate planning documents such as wills.
If you’re looking for a more extensive estate plan that involves trusts and complex life insurance strategies, expect to pay a little more. Keep in mind that many estate planning lawyers charge an hourly rate, which means a more complicated estate plan will cost more. These rates will depend on the law firm and the qualifications of their estate planners, so be sure to do your research upfront to understand all costs and fees.
Some lawyers also take a percentage of the estate as payment, especially if they’re acting as an executor, a trustee or an administrator.
Can I write my own estate plan?
With the advent of legal documentation websites, it’s possible to go the DIY route with many estate planning documents. That said, there can be a lot of detail in even basic documents. Online legal companies offer flat-fee kits that can save a lot of money compared to hiring a law firm. While something is likely better than nothing, organizations like the American Bar Association (ABA) have a lot of reservations when it comes to DIY estate planning.
How can I find an estate planning lawyer near me?
The good news is there are plenty of estate planning lawyers in your local area who can assist family caregivers and seniors—and connecting with qualified legal professionals has never been easier. Simply visit our Resource Hub for in-depth listings of experienced attorneys in your neighborhood. All you need to do next is contact your referrals, pick a law firm, and begin the estate planning process.