What is Estate Planning and Why it is Important?
One type of estate planning involves transferring or deeding real estate, typically to your children, with the condition that you can continue to reside in the real property for the rest of your life, and continue to pay the ongoing utility and other bills. This has a very fancy name: Deed of a remainder interest in the real property subject to a retained life estate.
This had been one of the favorite estate planning strategies before the Medicaid law was changed in 2005-06, but it still has some use now. Further changes in the law, or in certain situations, may make this type of transfer still a valid option. There must be no mortgage on the property that could be declared due upon the transfer, or the real property could face foreclosure. There are many other issues to consider also, such as estate and gift taxes, Medicaid “look-back” periods, and other issues.
Minimizing Estate Taxes
No simple summary of estate taxes can be given since the laws are changing, and appear likely to continue to change in the future, both on a federal and on a New York State level. Governments are needing more tax dollars to fund their programs and pay their debts, and estate taxes are one of the quickest ways to raise large sums when someone dies.
Estate taxes are largely not understood by the general public. Everything is taxable in an estate. Estate taxes are computed on everything the deceased had his or her name upon, whether jointly or in their individual name. Even the face value of life insurance is estate taxed if the deceased could have changed the beneficiary or borrowed cash value when alive. IRAs, 401(k) balances, pensions, stocks, bonds, real estate, and everything else the deceased owned will be estate taxed. Beginning in 1981, the federal government started exempting or not taxing certain estates below certain amounts, which exemptions gradually increased over the years. Congress and New York State can easily pass new laws to reduce or eliminate these exemptions, to “tax the wealthy”, which may be you.
Long Term Care
Many of us will need some type of long term care, which could range from assisted living to complete nursing home care.
For those of us that are still young enough, and have too much to lose, and can afford the premiums, long term care insurance may be a good choice. There are many choices, and these choices also are changing, and appear likely to continue to change in the future. Premiums are still somewhat affordable up to about age 62 or so, and you might qualify for income tax breaks on the cost of premiums. Long term care insurance is not for everyone, but should be considered by those under 62 when they are doing their estate planning.
Business Succession Planning
If you have a business, planning for your successors is critical, especially if you are the sole owner, or one of a few key persons. Buy-sell agreements, with or without life or disability insurance, and complete succession planning are needed to avoid the issues that will develop when you are no longer around to handle the business.
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