There is a common misconception that only crooks or the super wealthy need asset protection. In reality, everyday people should have asset protection planning. Comprehensive estate planning can protect you from each of these dangers that otherwise may cause the loss of some or all of your estate:
- Spendthrift Beneficiaries: Studies show that we do not do well when we are handed large sums of money. This is true upon winning the lottery as well as when inheriting. Age does not cure this problem. Drugs, cars, gambling, poor business decisions, or simply being overly generous are the most common ways an inheritance can be lost far too quickly.
- Creditors: You may be the most fiscally sound person but one car accident, illness, or business deal can subject your estate to massive creditor claims. The creditors may be your own creditors, a surviving spouse’s creditors, creditors of your children, or creditors of your grandchildren.
- Predators: I am using this term to refer to spouses (in-laws), other family members, friends, business associates, caretakers, or brand new acquaintances who may exert pressure on your spouse, your children, or grandchildren to loan, invest, or spend for the predator’s benefit.
- Capital Gains Taxes: Capital gains taxes are rarely thought about in most estate plans. Estate plans are often improperly established to require “carryover basis” rather than achieving a “step-up” in basis upon a death. Without going in to all of the details, this will needlessly generate capital gains tax liabilities that could have easily been avoided. These additional taxes may apply to every estate that has any appreciated assets (assets worth more at the time of death than their original purchase price) regardless of the total value of the estate.
- Estate Taxes: A 40% federal estate tax certainly is a danger for some estates. However, the unified credit for federal estate taxes is now $5,490,000. This means that an estate must be worth more than $5,490,000 before there is a federal estate tax. Both spouses have a $5,490,000 unified credit but, without proper planning, one of the credits is often lost. Although some states have state estate taxes, Arizona has no state estate tax.
- Long Term Care Costs: Skilled nursing care may cost $70,000 to $100,000 or more/year. And this is just for the facility. Medicaid, referred to as ALTCS in Arizona, is designed to pay for skilled nursing care costs but, to qualify, one must first be impoverished. The problem with qualifying, though, is even the spouse who does not need the care must have very little assets themselves. There are also stringent income limitations for both spouses. That being said, proper planning years prior to needing ALTCS support can do wonders in easing a couple’s concerns about the costs associated with future long term care.
- Divorce and Remarriage: Whether a divorce and/or remarriage is in your future or a beneficiary’s future, changes in marital status can quickly syphon away much of your estate (often times somewhere between one half to all of your estate).
Ask yourself if asset protection planning is something you should explore.