Your estate plan should work just as hard to protect your assets while you are here as it does to ensure they are distributed according to your wishes when you are gone. For your plan to protect your assets though, you must first identify the possible threats to those assets. Some of the ways in which your assets might be at risk are fairly obvious; however, there are also likely ways in which your assets are at risk that you have not thought of before now. To help you keep your assets safe, the Indianapolis asset protection attorneys at Frank & Kraft explain five hidden threats to your assets that you should address in your estate plan.
People often to think to protect against divorce in their estate plan; however, the threat from a divorce may be more serious than you realize. Even in states without community property laws, a divorce could seriously threaten your assets if you do not make a conscious effort to protect them. All states acknowledge separate property in some form, usually defined as assets owned prior to marriage or inherited during the marriage. What many people do not realize, however, is that co-mingling separate property can convert it to marital property. In addition, income derived from separate property is often considered marital property. Anything considered marital property is fair game for division during a divorce unless you took steps to protect it. That may mean entering into a prenuptial agreement prior to the marriage, or it could mean keeping separate assets in a trust so it is clear that they are not marital assets.
Federal Gift and Estate Taxes
The federal gift and estate tax is effectively a tax on the transfer of wealth that is collected from your estate during the probate of your estate. Every taxpayer is subject to federal gift and estate taxes at the rate of 40 percent, though many operate under the potentially mistaken belief that their estate assets are not significant enough to incur the tax. The tax applies to all qualifying gifts (almost all gifts are considered “qualifying” gifts) made during a taxpayer’s lifetime as well as all estate assets owned by the taxpayer at the time of death. People often count on being able to use the lifetime exemption to avoid owing gift and estate taxes. The problem with that is that you may not realize how much your estate is really worth, or more importantly, how much it will ultimately be worth at the time of your death. It is better to assume that your estate will be subject to the tax and plan accordingly than to mistakenly count on being exempt.
Long-Term Care Costs
The odds of you, or your spouse, needing long-term care (LTC) increase every year. If you do need LTC, the costs associated with that care could threaten your retirement nest egg. As a senior, you will likely depend on Medicare to cover most of your healthcare expenses; however, Medicare won’t pay for LTC as a general rule. If you continue to carry private health insurance after you retire, you will likely find that your policy also excludes LTC expenses, unless you purchased a separate LTC insurance policy. At an average annual cost of almost $100,000 in Indiana as of 2018, and an average length of stay of close to three years, paying out of pocket means you could end up with an LTC bill that approaches $300,000. For over half of all seniors currently in LTC, Medicaid is the answer. Qualifying for Medicaid, however, can threaten your retirement nest egg if you fail to plan ahead because you may be required to “spend-down” your non-exempt assets before Medicaid will approve you for participation in the program. Incorporating Medicaid planning into your estate plan now is the best way to plan for this possible threat to your assets.
Have you ever considered what might happen if you were seriously injured in a car accident tomorrow? If those injuries prevented you from managing your assets, who would do so for you? If you failed to plan for the possibility of your own incapacity, more than one person may want to take over for you, causing a bitter and divisive legal battle that might create a rift in the family for many years to come. Moreover, because you didn’t plan ahead, you have no control over who is appointed to control your assets. Instead, you can only hope that they do an adequate job. The way to ensure that your estate assets are controlled by someone of your choosing is to include an incapacity planning component in your estate plan.
Last, but certainly not least, are your beneficiaries. Your beneficiaries could be the biggest threat of all to your assets if you are not careful. Almost every family has a spendthrift – someone who simply is not good with money for one reason or another. Many families also have a member who has struggled with alcohol or drug addiction or has a gambling problem. Leaving assets directly to these beneficiaries is akin to throwing them in the trash in some cases. Fortunately, there are ways to provide for beneficiaries who should not be handed a lump sum of money. A trust, for example, allows you to provide for a beneficiary but only under the watchful eye of a Trustee who manages the trust assets and distributed them according to your wishes.
Contact Indianapolis Asset Protection Attorneys
For more information, please download our FREE estate planning worksheet. If you have questions or concerns about protecting your estate assets, contact the experienced Indianapolis assets protection attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.