Having a comprehensive estate plan is important at every stage of life. As you reach your later years, you may wonder if you have done everything you can to preserve your legacy and protect those you’re leaving behind.
Estate planning is more than just directing where your assets will go. It ensures your wishes are honored and decisions are made by the people you trust most. It minimizes stress and confusion for your loved ones as they navigate the grief of your passing. It helps protect the most vulnerable people in your life — an aging spouse or a special needs child or grandchild. And it avoids unnecessary exposure of your assets to taxes, creditors, and nursing home spend-down requirements.
A carefully designed end-of-life estate plan is likely to involve the following documents and considerations:
Last will and testament: This document directs assets that have no surviving joint owner or designated beneficiary through the probate process.
Living trust: Commonly used in well-designed estate plans, a living trust avoids probate, establishes a private and streamlined path for assets to pass to beneficiaries, and can provide ongoing protection for vulnerable beneficiaries such as minors, spendthrifts, disabled or special needs individuals, and people facing financial threats, including divorce or lawsuits.
Durable power of attorney: This names individuals to make a wide range of legal and financial decisions on your behalf. This is critical as you age and may become physically or cognitively limited.
Healthcare proxy: This names individuals to manage your medical decisions if you become unable to do so.
Funeral/burial instructions: Although these can be relayed in a will, the best course of action is to establish a prepaid burial arrangement with your funeral home. This ensures your exact wishes are known and saves your family both the financial burden of paying for your funeral and the emotional burden of making painful decisions shortly after your death.
Tax sheltering: Estate taxes — a tax on your assets following death — are a frequently overlooked exposure. Although the federal estate tax currently applies only to estates exceeding $13.6 million, many people are unaware that Massachusetts has its own estate tax, applied to estates exceeding $2 million. Because all assets, including life insurance, count toward this calculation, the Massachusetts estate tax catches many people off guard. Planning strategies such as lifetime gifting and irrevocable trusts can help shelter assets.
Income taxes can also surprise beneficiaries. For example, capital gains taxes may apply when a house is gifted to a child who later sells it. With proper planning, real estate can pass seamlessly to children and others with added protection.
Long-term care/nursing home protection: Shielding assets from the cost of nursing home care has become one of the primary focuses of estate planning. The rules regarding asset spend-down requirements and eligibility for benefits (typically Medicaid) are complex. Because many planning approaches involve a five-year lookback period before assets are protected, starting the process before your health becomes compromised is critical. Married couples often have additional flexibility and can create a special trust in their wills to provide the surviving spouse with full access to assets.
Blended family: If you are remarried or cohabiting and have separate children, a careful examination of your documents and assets is crucial to ensure you protect each other without inadvertently disinheriting your beneficiaries.
Estate planning is an ever-changing landscape. Reviewing your situation with a compassionate, competent estate planning or elder law attorney is a critical step toward achieving peace of mind.
Brendan J. King is a founding partner at Worcester law firm Estate Preservation Law Offices.