Plan Your Estate to:
1. Provide Stability For Your Family
It is common for one spouse to end up managing most of the family’s financial affairs. In the event that spouse is the first to die, the surviving spouse can be left unaware of how to carry on the family’s financial affairs. This can lead to months of floundering, unpaid bills, harassment of creditors and potential legal costs. This is all at a time when the surviving spouse is also dealing with the emotional fallout of losing you. Even if both spouses are equally involved in the family finances, management of separately titled real estate or financial accounts can lead to costly delays and potential court involvement in administration of the estate. Additionally, there is the risk of opportunistic heirs at law coming out of the woodwork to make a grab for your assets. Use of a Will and a Trust can help your family minimize the turmoil caused by death.
2. Avoid Probate
“Probate” is the court supervised collection of assets, payment of debts and expenses with the net amount being distributed to the beneficiaries. Probate is necessary in the event you die either (1) without a Will or (2) with only a will but no Trust and (3) with more than $150,000 in your estate. The advantage of probate is that the court will be involved in every step of the distribution of most of your assets. The disadvantages are that the process is very slow, all filings are public record, and the costs can be much higher than those involved with the drafting and administration of an estate plan employing a revocable trust. For example, the cost of administering an estate with a value of $600,000 could cost as much as $30,000, plus court filing fees.
3. To Distribute Your Assets According to Your Wishes
There’s no reason to leave the distribution of your estate up to the default laws of intestacy. Depending on your family situation, your assets may very well not end up where they could do the most good. Have you been married more than once? Do you have children from a prior marriage? Do you have a special needs child? Would you trust your 18 year old son to make the right decisions if he were suddenly controlling all of your assets. Alternatively, would you prefer these assets be held in trust and managed by a trusted family member or professional fiduciary until he reaches a more responsible age? You can take action today to see that your wishes are carried out after you are gone.
4. Tax Planning
Volumes of text are written on this topic annually. Suffices to say that, barring legislative action, the unified estate tax exemption amount is $5,450,000 per spouse in 2016, and the highest estate tax rate is 40% for amounts exceeding the exemption. Lifetime gifting can eat into your available estate tax exemption amount as well. Credit shelter trusts can be used to defer, if not avoid, estate taxes all together in many cases. Additional tools, including fractional interest discounts, qualified personal residence trusts, charitable remainder trusts, grantor retained annuity trusts, and the like can be employed to reduce, or possibly eliminate, this tax burden on your loved ones.
5. Manage Business Ownership
Are you a partner, a member of an LLC, an owner of stock of an S-Corporation or C-Corporation? You can plan now to not only decide who will inherit these interests, but you can also grant your successor trustee the authority to carry on with your business, either indefinitely, or during the transition period. Now is also your opportunity for you and the other members/stockholders to discuss succession planning so your business can continue to provide for your family after you are gone.
6. Maintain Privacy With A Trust
Wills are lodged with the court after your death. The document becomes a public record as are all probate proceedings. In general, trusts are private documents and the likelihood that they will become an item of public scrutiny is much lower. You may want to keep your ownership of stock in XYZ Corp from becoming public information, you may not want the world to know you disinherited your daughter, or you may not want the special needs provision of your Will funding your son’s addiction treatment to become common knowledge. Your family matters are private and you can use a trust to help keep them that way.
7. Ensure Your End of Life Decisions Are Followed
The Terri Schiavo case; a seven-year legal battle that tore a family apart. Drafting an Advanced Health Care Directive would have saved that family thousands of dollars and years of pain. Decide now who to grant authority to act as your health care agent and direct your agent as to when you want life sustaining treatment to end.
8. Nominate A Guardian For Your Children In Your Will
Parents with minor children can nominate who they would want to act as their children’s guardians in the event the parents’ incapacity or death. Making this nomination during life will help your family and friends avoid fighting over who will care for your children. Absent this election, the court will be forced to make the decision, and the court’s decision may not be the one you would make.
9. Nominate A Conservator In Your Advanced Health Care Directive
Similar to electing a guardian for your children, you can nominate someone to act as the conservator of your person in the event you become incapacitated and your spouse is unable to act on your behalf. If you are married, your spouse will be the first person the court will look to, but if you spouse is not available, this is your chance to nominate who will step in and be responsible for your well-being.
10. Take Advantage of Lifetime Giving Incentives
You and your spouse can make annual gifts of up to $14,000 per recipient without the need to file a gift tax return. This is an easy way to begin lowering the value of your taxable estate while transferring your assets to the people you feel can make best use of them. Additionally, the Internal Revenue Code has several provisions designed to incentivize lifetime giving. For example, Charitable Lead or Remainder Trusts can be used to make lifetime gifts that will not only reduce the amount of your taxable estate, but which will also provide an immediate income tax benefit. Another great tool are Grantor Retained Annuity Trusts which can also be used to gift to your children while maintaining control over your assets and avoiding any gift tax consequences. There are many options and combinations that can be tailored to your particular situation and to meet your goals.
I invite you to contact our office at 415-781-4000 to answer your questions.