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There are some universal estate-planning strategies that apply to young people, no matter their financial situation.
 
The most important is establishing a medical power of attorney. Every adult at least 18 years old should create one.
 
Prior to age 18, a child’s parents and guardians are able to make medical decisions on their behalf, but becoming an adult severs those parental and guardianship rights. In the case of a medical emergency, in which a young person is incapacitated and unable to make a decision regarding treatment, parents will not be able to access medical records or make health care decisions without a medical power of attorney.
 
Creating a medical power of attorney does not have to be expensive. The private, nonprofit organization called Aging With Dignity offers online access to a document, called Five Wishes, that serves as an advance medical directive. It is meant for the elderly, but any adult can use it, and it is recognized in more than 40 states.
 
Young adults should also have a power of attorney that governs financial assets. The financial power of attorney determines who can access financial accounts, such as 401(k) plans and individual retirement accounts.
 
Reference: The most important part of a young person’s estate plan, Investment News, August 3, 2016.
 

An intra-family loan is a simple estate-planning technique with a very low transaction cost.
 
Under rules set forth in the Internal Revenue Code, you can make loans to family members at rates lower than those charged by commercial lenders without it being deemed a gift.
 
Generally, if a parent gives an interest-free loan to a child, the IRS treats the foregone interest as a taxable gift. To prevent this, the parent must charge a minimum interest rate. To the extent that the interest charged on the loan is lower than the minimum, that amount will be imputed income to the parent, even though the parent does not actually collect it. The IRS will also treat that amount as a gift to the child, which would require the filing of a gift tax return.
 
However, if a parent establishes a creditor-debtor relationship with adequate stated interest, the intra-family loan will not be characterized as a transfer subject to the gift tax.
 
Intra-family loans create an opportunity to shift wealth from parent to child, if the child can earn a greater return on the amount borrowed than the AFR. To the extent that a child can earn a higher rate of return on the borrowed funds than the interest rate being paid, he or she is able to keep the excess without any gift taxes being paid.
 
Intra-family loans are also more beneficial than third party loans because they allow the total interest expense paid over the course of the loan to stay within the family rather than being paid to a bank.
 
Reference: Intra-family Loans: A Simple Yet Effective Estate Planning Tool, National Law Review, July 30, 2016.
 

Understanding these estate planning myths will help you to create and maintain a plan that will work the way you expect it to work when it’s needed.
 
Estate Planning Myth #1 – You Don’t Need an Estate Plan Because Your Spouse Will Inherit Everything
 
Who will inherit your estate depends on many different factors, including how your property is titled, who you have named on your beneficiary designations, and the laws of the state where you live and any other state where you own property.
 
Estate Planning Myth #2 – You Don’t Need an Estate Plan Because Your Family Knows Your Final Wishes
 
You’ve shared your final wishes with your family and you’re confident that they’ll “do the right thing” after you die. Unfortunately, without having these wishes written down in a valid will or a valid trust, your family may not be able to fulfill your intentions for several reasons. First, how your property is titled will determine who inherits it, not who you’ve told your family you want to inherit it. In addition, if you fail to complete or update the beneficiary designations for assets such as bank accounts and life insurance policies, your family won’t have any authority to tell the bank or insurance company who should inherit the proceeds. Finally, without an estate plan, the laws of the state where you live and any other state where you own property will dictate who inherits your probate estate, not your family.
 
Estate Planning Myth #3 – Once You’ve Created Your Estate Plan, It’s Done
 
As the years go by, your life will change. The laws governing wills, estates, probate, and death taxes will also change. This means that eventually your estate plan will become outdated. The only way to insure that your plan will work the way you intend it to work is to pull it out of the drawer every few years and review it.
 
Final Thoughts About Estate Planning Myths
 
These are only three of the estate planning myths. Unfortunately there are others. If you have questions about estate planning, please contact my office.
 

That depends on the size of your estate. Federal estate taxes must be paid if the net value of your estate when you pass away is more than the amount exempt at that time.
 
Some states have their own estate/inheritance tax, and it is possible your estate could be exempt from federal tax but have to pay state tax.
 
Your taxable estate includes benefits from life insurance policies you can borrow against, assign or cancel, or for which you can revoke an assignment, or name or change a beneficiary.
 
If your estate will not have to pay estate taxes, naming your living trust as owner and beneficiary of the policies will give your trustee maximum control over them and the proceeds.
 
If your estate will be subject to estate taxes, it would be better to set up an irrevocable life insurance trust and have it own the policies for you. This will remove the value of the insurance from your estate, reduce estate taxes and let you leave more to your loved ones.
 
There are some restrictions on transferring existing policies to an irrevocable life insurance trust. If you pass away within three years of the transfer date, the IRS will consider the transfer invalid and the insurance will be back in your estate.
 
There may also be a gift tax. These restrictions, however, do not apply to new policies purchased by the trustee of this trust. If you have a sizeable estate, your attorney will be able to advise you on this and other ways to reduce estate taxes.
 

The process of funding your Living Trust is not difficult, but it will take some time.
 
Because living trusts are now so widely used, you should meet with little or no resistance when transferring your assets.
 
For some assets, a short assignment document will be used. Others will require written instructions from you. Most can be handled by mail or telephone.
 
Some institutions will want to see proof that your trust exists. To satisfy them, your attorney will prepare what is often called a Certificate of Trust. This is a document that verifies your trust’s existence, explains the powers given to the trustee, and identifies the trustees. However, it does not reveal any information about your assets, your beneficiaries, or their inheritances.
 
While the process isn’t difficult, it is easy to get sidetracked or procrastinate. Just make funding your trust a priority and keep going until you are finished. Make a list of your assets and their values and locations. Then start with the most valuable ones and work your way down. Remember why you are doing this, and look forward to the peace of mind you’ll have when the funding of your trust is complete.