Among estate planners, the word
“intestate” is not taken kindly. Neither
should it be taken kindly by high-net-worth individuals who keep putting off
planning for the inevitable.
“You should plan for the future of your
family now rather than later,” says Donald
R. Kurtz, of counsel to Shulman Hodges &
Bastian LLP. “Do it thoroughly and review
it every one to three years.”
Smart Business talked to Kurtz about the
tools available to secure your assets in
your family’s best interest.
What are the essential elements of a coherent estate plan?
An estate planner will try to find out your
objectives and goals. Some people are
interested in making sure that assets go to
their intended beneficiaries after their
death; some are interested in establishing
guardians for minor children; some are
concerned about potential estate taxes;
some are concerned about protecting
assets from creditors.
Wills are a cornerstone. But if you simply
have a will and you pass away, the family or
heirs usually have to go through a probate
court to secure your assets. In most states,
a living trust can help you avoid the probate court if it has been properly funded. It
can establish the distribution scheme of
your assets upon your death; if you are
injured or disabled, the trust along with
limited powers of attorney can act much
like a conservatorship to deal with your
affairs.
Additionally, health care directives can
designate someone to make decisions for
you in the event that you are unable to
make those decisions.
These kinds of documents comprise the
basic foundation of an estate plan.
Sometimes — depending on the size of the
estate and the needs — there may be other
direct tools, such as irrevocable trusts, limited liability companies and corporations.
If you do nothing, most states have
intestate laws that let the state decide
through probate which person or persons
should get your assets by the state’s order
of priority.
Of what significance is life insurance?
Life insurance is another estate-planning
tool. If you have family responsibilities, it
can fund the future financial care of family
members or other dependents. If you have a
large estate, life insurance also can create
liquidity to pay estate taxes rather than having to use more tangible assets — like real
estate — that might lose value if they’re liquidated quickly. When insurance exists,
other vehicles, such as an irrevocable life
insurance trust, can hold that insurance
asset and yield additional tax benefits.
What are the most frequently overlooked
items when developing an estate plan?
Obviously, people often put off estate planning. It is not the most pleasant subject in
the world. They often plan to set up a trust,
but it’s put on the back burner. They do not
realize that good intentions and verbal wishes passed on to friends and family won’t
accomplish what a well-drafted estate plan
would. If something unexpected does happen, estate planners have to use what few
remaining tools exist — usually the intestate
rules of the state — that may not accomplish what the individual intended.
Even if you write a formal plan, additional
factors can get overlooked. For instance, a
trust situation requires the transfer of the
assets into the trust. Financial accounts
should be funded into the name of the trust,
and real estate must be transferred into the
names of the trustees. For planning purposes, the goal would be to get all of your assets
transferred into the trust while you are alive,
otherwise probate or other estate administration procedures may still be required.
Trusts are dynamic. Things get overlooked. Situations change. Children get
older, trustees may have gotten too old to
serve, and/or assets change. You may purchase a different home or have different
business interests. So, as you bring more
assets into the estate, you have to continually review whether they need to be transferred to the trust. For instance, you may
refinance a property a year or two after
establishing the trust. During that process,
the real estate may have been taken out of
the trust and then not put back in.
I prefer to review trusts every year, but
even once every three to four years is better
than just letting it sit. At a minimum, we recommend trusts should be reviewed every
three years.
Can purchasing a will or trust divert enough
money to reduce a large estate tax?
We’re not sure how changes in the federal
tax laws in the next few years will affect
estate taxes. The current law, enacted in
2001, allows for an exemption credit of $2
million in 2008, which will increase to $3.5
million in 2009. Then in 2010, the estate tax
gets repealed for one year. In 2011, unless
the federal government enacts a new law,
the estate tax returns with a lower $1 million
exemption credit.
No matter what federal estate tax laws are
in affect at the time of a person’s death, tools
exist that can reduce the tax bite for larger
estates. Advance estate planning can eliminate or lessen estate tax by using trusts that
take advantage of the then-current exemption credit and marital deductions.
DONALD R. KURTZ is of counsel to Shulman Hodges & Bastian LLP. Reach him at (949) 340-3400.