Congratulations for taking action on your estate planning.
It is never too late or too early to do estate planning. If this is your first experience with a lawyer, you may be concerned about what is involved. Our policy is to make this process as simple and painless as possible. We do not charge for an initial consultation. You are encouraged to contact us by telephone or email and to come in and talk about your estate planning needs. When you decide what you want done, we usually propose a flat fee that will cover all document preparation and funding or asset transfer. In addition, we will modify your estate plan documents any time in the following year for no additional charge. So if you change your mind six months later, we can prepare new documents to make those changes. As a member of Wealth Counsel, our estate plan design and document drafting is the best available. We focus on complex estate and asset protection programs for large, taxable estates but are very willing to prepare estate plans for smaller estates as well. We emphasize a team approach involving collaboration with your other advisors and experienced professionals such as CPAs, asset managers and insurance specialists. In addition to estate planning, we can handle your business and realestate transactions.
What is Estate Planning?
Most new clients come into my office with the idea that estate planning means signing a pile of documents that will somehow handle their affairs after they become disabled or die. Unfortunately, too many attorneys who offer estate planning services seem to agree with that idea. However, too many of their clients families find that even though their parents had a trust or limited partnership, the family situation after the death or disability of the parents still created confusion, mismanagement of assets or other serious problems and often produced long term disputes between family members. There is much more to effective estate planning than merely signing the documents.
Saving taxes and avoiding probate are peripheral, mechanical issues that are, for the most part, easily handled. In almost every case, my number one challenge as an estate planner is to help ensure that the family doesnt fall apart after the parents are gone. Parents are the glue that holds a family together. Once that glue is gone, and without the proper tools available, disagreements and misunderstandings can tear a family apart, sometimes creating irreparable damage. I know this is true because I watched it happen in my own family and Ive seen it happen to other families as well. To address this overriding concern Ive developed several unique planning strategies that either remove or significantly reduce the opportunity for the children to fight or argue, while ensuring that the estate is managed and distributed fairly, quickly, and wisely. Of course, we avoid probate and reduce taxes thats the easy part. But if the children stop caring for each other after mom and dad are gone and the fabric of the family unravels, I believe I have failed in my role as the familys estate planner.
I can only add that I agree completely with what Eden is saying and I have experienced the same situation in my family and in my practice. A critical part of real estate planning is to take the time to consider how your affairs should be handled if something were to happen to you in the next year. Here are the bullet points on what YOU need to do for your estate plan in addition to a trust and other documents:
Make a list of all of your assets. Your real property, your business interests, your investments, your life, disability or long term care insurance and any other assets that you are involved with in any significant way (property of your children, parents or other relatives). Then think about what would need to be done concerning that asset if something happened to you. Give consideration to who should manage what and how the family dynamics (how your children work together) will play into this process. For example, if you house would need to be sold, are there maintenance issues that should be addressed in the near future like a new roof or paint. Where are the records kept concerning property taxes and other expense items? For commercial property, where are the tax records kept (depreciation schedules)? What long term care or life insurance do you own and where are the policy documents? Do you have a plan for selling your commercial or residential properties? Are there partners involved? What are the tax ramifications of the estate such as stepped up basis, when taxes are due, 15 year extension of estate tax payment for small business, and so on. If you take time at least once a year to go over questions like this that apply to your personal situation, and write down your plan and hold an annual meeting with your spouse and children (something useful to do over Christmas holiday) to review the situation and plan with them.
Usually one member of the family conducts most of the business and has all these things in their head. Unfortunately, that person is usually the first to go, leaving the surviving spouse or children who have only a sketchy idea of how to proceed. To avoid the resulting problems, these issues need to be addressed in good estate plan. The process of doing this planning meeting each year will also cause you to focus your attention on these issues, at least briefly, which may result in you actually doing a better job of managing your affairs.
Most people think of Estate Planning as planning for what happens after they die. But effective Estate Planning really means managing your personal assets beginning right now to minimize risk, maximize return and reduce taxes. Here are some ideas for how we can do that:
What is Wealth Management?
ASSET MANAGEMENT: Most people have accumulated some assets during their life. This may be a home,farm, business, material possessions or financial investments. Most people with significant assets protect those assets with insurance and spend considerable time and effort to manage their business or investments. Yet most people do not have a plan or system in place to protect those assets from liability risks, or to manage those assets for the benefit of themselves or their family if something happens so that they are no longer able to manage their own assets. Asset management means treating your personal assets in a responsible fashion so that they are protected and properly managed to meet your needs and goals throughout your life, even when you are not able to manage them yourself, and to continue that management for the benefit of your family or heirs even after you are gone.
ASSET PROTECTION: Trial lawyers use the term "deep pockets". By that they mean the party they want to sue is the one with the most money. If you have assets, you are a "magnet" for law suit liability. And that includes ex-spouses. Corporations, limited liability companies and limited partnerships largely exist to protect the assets of share holders and investors so they can enjoy the benefits of financial success without putting their other assets at risk from the liabilities that are associated with almost any business or personal activity. Personal assets can be protected in the same way. It is possible to protect all or part of your assets so that even if you are sued from a business activity or an accident, your assets will be protected for yourself and your family.
MANAGEMENT SUCCESSION: Every large business has a management succession plan. A family with significant assets is really a business in itself and also needs to plan for ongoing asset management when the current manager or "bread winner" is not able to do that job. Even without unforeseen problems, most of us will experience some period of disability in our life during which we are not able to manage our own affairs. In our practice wefrequentlysee new clients who are asurviving spouse who just losthis or her spouse who, as it usually happens, was the one who handled all of the financial affairs. This can be a challenging situation for the inexperienced surviving spouse. Financial matters which were complex before, become even more difficult after the death or incapacity of other spouse.Another problem shows up when parents leave substantial assets directly to inexperienced, though adult, children. In many cases it is better to provide ongoing management of assets rather than to pass large sums to our children before they are really ready to manage such wealth on their own.
Most of us put off "estate planning" indefinitely with the idea that it is something thatwe don't need to worry about untilwe are "really old". Sudden onset of health problems, remarriage or other changes in personal relationships can happen quickly with radical effects on our life. The reality is thatthe unforeseen contingencymore oftencomes up before any estate planning is done. In the event one spouse is incapacitated, a guardianship will have to be established in order to manage any real property or the separate property assets of that spouse. A power of attorney, though useful, is not always sufficient for this purpose. A guardianship is often an expensive and difficult process. With proper planning and preparation, you can choose who will manage your assets when you are not able toand establish the terms and plan for that management so you know it will be carried out the way you want. With good estate planning, a guardianship is not required and assets will be managed by capable parties.
TAX PLANNING: On large "taxable" estates, roughly half the value of the estate has to be paid as estate tax within nine months of death. The first two million dollars of an estate is effectively "tax free" if it goes to US citizens. Note that only $60,000 can be given to non US citizens, even family, before the estate tax kicks in.The tax on amounts over $60,000 starts at 26%. Even thetwo million dollar exemption for transfers to US citizens will go back to only one million dollars in 2011 and thereafter. The estate tax on any value above the threshold amount of two million dollars starts at 45% and quickly goes to the maximum of 46%. Beginning in 2011, the maximum rate will revert back to 60% (if the tax law is not changed). So a six million dollar estatehas topay roughly $1,840,000 in tax within nine months of death. A twenty million dollar estate will pay about $8,280,000.
This is probably the highest tax rate any of us will ever have to pay so anything we can do to reduce this amount is worth considering. This kind of tax will often require the sale of all or a major part of a farm or business to pay the tax. And the tax has to be paid within nine months of death so arrangements can be difficult to make. This is where the term "estate sale" comes from, along with its connotation of a "below market value" bargain. It is also worth noting that the value of lifetime gifts and life insurance proceeds are also included in the "taxable estate" unless special measures are taken to keep those amounts out of the estate. So if you have a taxable estate and buy additional life insurance without specific estate planning measures, half of that life insurance proceeds will go to tax on your death.
Appropriate estate planning can double the estate tax exemption for married couples, avoid all tax on life insurance proceeds and substantially reduce the amount of estate tax paid on large estates. On a typical husband and wife estate worth five million dollars, without other planning theestate tax would be roughly $1,400,000. With appropriate estate planning, estate taxes could be completely avoided and the assetscan be protected from lifetime liability and properly managedfor themselves duringtheir life and for their descendants. It is also possible to extend the time of payment of estate tax out to fifteen years for small businesses and farms.
AVOIDING PROBATE: If you die with land or significantassets and you don't have a trust established to manage your assets, your estate will have to go through probate. Probate has been described as a lawsuityour family filesagainst themselves (actually your own estate), paid for out of the estate assets, in whichthey tell the public everything in the estate and who it is going to and then invite anyone to file a claim against those assets at your expense by publishing an expensive notice in the newspaper. There is a whole community of scam artists who prey on the beneficiaries of large estates and they get their leads from the newspaper notices and public court records. There are many attorneys who encourage people to use wills rather than trusts for estate planning. A will requires a probate to be effective. A will does nothing without a probate. A properly established trust eliminates any need for a probate. No one other than the trustee needs to know what the assets are or where they are going. A probate does not have to be exorbitantly expensive but, for some reason, most probates cost dramatically more than you would expect. It is typical for a probate to cost roughly six percent of the gross value of the estate. So even a $500,000 estate can cost $30,000 to probate. A trust which completely avoids the whole probate exercise, need only cost $1,000 to $2,000. It is possible that some attorneys would prefer to collect the $30,000 fee rather than the $2,000 fee. Those same attorneys often charge as much if not more for a good will that will require that expensive probate, as what a simple trust would cost that completely avoids probate. But it is your choice.
MEDICAID ASSET PROTECTION: For those families with less than $500,000 in net assets and who are facing nursing home care for one or both of them, there is often a desire to protect at least part of their assets to pass on to their heirs rather than spend all of it on nursing home care. For a married couple with up to $500,000 in assets, it is possible to save as much as 75% of those assets for their family and still qualify for Medicaid paid nursing home care. For a single person, it is possible to save roughly 50% of those assets and still qualify for Medicaid. The procedures needed to do this are somewhat complicated and require the assistance of an attorney who specializes in this area. In general, the sooner you start planning, the more you can save and the less attorney fees are required. One free tip: If you own a home or if your elderly parents own their home, don't sell that home without first talking to an "elder law" specialist attorney. There are exemptions for homes with Medicaid qualification but not for the cash proceeds of selling the home.
FOR OTHER FINANCIAL PROFESSIONALS: Many financial planners, accountants and insurance agents tend to view attorneys with some trepidation. Butgood estate planning should not be regarded as an obstacle to selling your client the services and products your client needs. In fact, good estate planning requires a team of allied professionals and generates marketing opportunities for the sale of related services. Estate planning needs a good financial planner and an accountant on an ongoing basis. Life insurance and long term care insurance are almost always recommended as part of an estate planning program. An irrevocable life insurance trust can be set up quickly to facilitate providing your life insurance client with the best possible service and avoid unnecessary tax liability. Asset protection and long term trust management mean it is more likely that your client will need and benefit from your services for a much longer period of time. You won't be managing your client's money after it is taken bythe IRS or a lawsuit. Clients tend to regard all professional services as, at best, a necessary if unpleasant expense. But when your client can realize substantial tax savings and provide real security for themselves and their family, they will more easily see the value your services provide. Association with a quality estate planning attorney will add quality to the services you provide. One of the first questions any financial advisor or accountant should ask their client is: "do you have an estate plan?". If they say no, we need to talk.
To the extent the above contains an opinion on one or more Federal tax issues, such opinion was not written to be used and cannot be used for the purpose of avoiding penalties. If you would like a written opinion on one or more Federal tax issues addressed above upon which you can rely for the purpose of avoiding penalties, please contact us.
To find the office: driving on Meridian Street proceed to Westerly which is the next traffic light north of Bakerview. Turn East on Westerly and proceed past the Holiday Inn Express to the adjacent Pacific Meridian Plaza Building. You will then be in our parking lot. We are on the fourth floor.