- Your Existing Estate Plan May Not Protect Your Assets
A basic estate plan should include some asset protection tools and strategies; however, there may be other potential threats to your assets that may not already be addressed in your existing estate plan.
- The Tax Threat
The tax is effectively a tax on the transfer of wealth that is collected from a taxpayer’s estate after death. The tax applies to the value of all qualifying gifts made during the taxpayer’s lifetime as well as the value of all assets owned by the taxpayer at the time of death. The American Taxpayer Relief Act (ATRA) of 2012 permanently set the federal gift and estate tax rate at 40 percent. That means that your estate could owe almost half of its value to Uncle Sam if you fail to protect your estate.
- The Long-Term Care Threat
The cost of long-term care (LTC) could pose a threat to your assets because unless you can afford to pay out of pocket, you may be forced to turn to Medicaid for help. If you do need to qualify for Medicaid in the future, the Medicaid asset limit and corresponding “spend-down” rules could result in the loss of a significant portion of your assets if you failed to include Medicaid planning in your estate plan.
- The Divorce Threat
Even in states without community property laws, a divorce could seriously threaten your assets. 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 before the marriage.
- The In-Law Threat
Your daughter or son-in-law could do significant damage to your estate assets. As a parent, you likely plan to pass at least some of your assets down to your children. When you make an outright gift to an adult child, the assets gifted become the property of your child, and potentially his/her spouse once the gift is made. Those assets are then subject to division in a later divorce or being squandered by a spendthrift spouse.
- Asset Protection Planning
Working closely with an experienced estate planning attorney can help you guard against the numerous potential threats to your assets. Asset protection planning refers to the legal tools and strategies incorporated into an estate plan to prevent the various threats to your assets from causing you to lose some, or even all, of your assets.