Estate Planning

Estate planning is the structuring of your estate to provide for:

  • Organized and proper distribution of wealth at the time of your passing to family, friends and charities whose causes you wish to support
  • Lifetime management of your assets in case of your incapacity or disability
  • Designation of those who are empowered to make the determination of your ability to properly manage your financial matters
  • Naming of persons and/or entities to be entrusted with making investment decisions or paying bills if you are unable to do so
  • Avoidance of probate
  • Minimization of estate taxes and administration expenses
  • Appointment of guardians for minor children
  • Distribution or retention of property for spouses, descendants or charities, including the timing of any distributions based on:
    • Age vesting (e.g. one-third at ages 25, 30 and 35)
    • Time vesting (e.g. half at death of spouse and half 5 years later)
    • Outright distribution with no restrictions
    • Specific incentives (heir will receive $1 for every dollar they earn; won't receive money until they graduate)
    • Creditor protection to protect the children's inheritance from failed marriages and lawsuits
    • Protection of the spouse and children from losing their inheritance if the spouse remarries or gets sued
    • Special trusts for disabled children
    • Creation of an entity for your parents' support to ensure they will have financial support even if you die

Every estate plan is different and when done properly, provides the guidelines for administration of your estate so that you can, in effect, dictate from the grave and ensure that your every wish is carried out exactly the way you want, when you want and by those you want to handle each aspect of your estate plan.

Types of Estate Plans

A properly designed estate plan should include either a Will or a Trust tailored to meet all of your estate planning goals. When a Trust is used, a special type of Will is also prepared as a “safety net” to ensure that all assets are transferred to the Trust for proper administration after your passing. Power of Attorney for Property or financial matters, as well as a Power of Attorney for Healthcare, should also be prepared so that you can specify who can make decisions for you if you are unable. A Living Will, which is also a type of healthcare directive commonly referred to as the “pull plug” document, should also be included in every plan.

Will Based Plan. Will based plans are typically used by those with very few assets or no descendants. A typical Will client would be a young couple renting an apartment with no children. As their assets or family grow, the simple Will based plan will be insufficient and a Trust should be incorporated to provide a vehicle to hold the inheritance until the children reach some predetermined ages to avoid them receiving the entire estate at the age of majority, which is usually eighteen. A Will speaks once, which means it operates only at death and provides no lifetime management of your assets, requires probate and court supervision to pass the assets to the heirs, and typically results in significant administration expenses in the form of executor or personal representative fees, legal fees, accounting fees and court costs.

Trust Based Plans. An estate plan based on the use of revocable trusts is used for those with assets in excess of the mandatory probate limit, which is typically anything more than $50,000 to $100,000, depending on state law. Since only Wills are required to be supervised by a probate court, the use of a trust permits you to select a trustee to handle all future administration in the event of your incapacity or death. Frequently, disability trustees and death trustees are named so that both short term and long term trustees can be named. A trust can be designed to meet all of your specific needs and family goals. Trust based estate plans are used for virtually all of our clients and range from highly complex asset protection trusts to trusts designed to minimize estate taxes to probate avoidance trusts to contingent children's trusts used only if a person dies leaving minor children.

Most Estate Plans Include:

A-B Trusts. This type of trust is designed to provide for the distribution to family members at the death of the surviving spouse, with a “wipe out” clause to cover the possibility that no member of the immediate family may survive. This type of revocable trust can also be used to avoid probate, minimize estate taxes, control the timing of distributions, hold inheritances for future generations (dynasty trusts), protect the beneficiaries' inheritances from failed marriages and lawsuits, and provide for lifetime management of your assets in the event of your disability. Alternate tax provisions are included to provide rules should you pass away in a year when the estate tax has been abolished (current legislation abolishes the estate tax for one year in 2010); a different set of rules if you die in a year when the estate tax is applicable (anytime before or after 2010); and guidelines for minimizing income taxes on appreciated assets when step-up in basis rules are no longer in effect (currently after 2010). Planning for tax-deferred retirement accounts, life insurance, annuities and any state inheritance taxes also needs to be undertaken to ensure that all taxes are minimized.

Dynasty Trusts. Multi-generational planning is frequently used by those with significant assets to take advantage of the generation skipping transfer tax exemption and create a “dynasty“ trust to hold assets after your passing for your children with the amount remaining after your children's death to be held for the benefit of their descendants, avoiding estate taxation at your children's death. While the amount that can pass to a dynasty trust is limited to $1,000,000 per spouse, this amount is indexed for inflation and currently a total of $2,200,000 can be held in a multi-generational trust. With money doubling every seven to ten years, this amount can quickly grow to $30 or $40 million in one's lifetime (e.g. $2.2 million doubles to $4.4 in seven years; to $8.8 in fourteen years; $17.6 in twenty-one years; to $35.2 million in twenty-eight years and to $70.4 million in thirty-five years, which can be a single generation).

Irrevocable Life Insurance Trusts (ILIT). Insurance trusts are frequently part of the base plan if the estate is taxable. ILITs are designed so that life insurance that would have been taxable in your estate is instead owned by a trust (and not by you), which results in estate tax savings of approximately one-half of the insurance death benefits. In other words, a two million dollar life insurance policy would normally generate about $1,000,000 in estate taxes, but when this policy is held by an ILIT, the estate taxes are reduced to $0 and a million dollars in estate tax savings is realized.

Asset Protection Trusts. Most affluent families realize that if something goes wrong in their business or personal lives and a lawsuit is filed, that they could be financially devastated. The preservation of accumulated wealth is more important to them and their families during their lifetime than is their concern of the possibility of estate taxes after their death. After all, if you have an automobile accident and get sued for more than your existing insurance, all of your accumulated wealth is at risk. If you lose this wealth, you may not have enough working years left or be able to find the same business opportunities to replace that lost wealth. Asset protection trusts are of interest to virtually all professionals and business owners and retirees, including doctors, attorneys, accountants, contractors, automobile dealers, investment advisors, owners of manufacturing companies or transportation equipment, those with second homes, boats, planes, snowmobiles, fast cars or any other assets which may give rise to a claim. A properly drafted asset protection trust is tax neutral and will permit you to obtain the exact same income, estate and gift tax benefits that you could obtain with a standard estate planning trust — but with the added bonus of having your wealth protected from lawsuits during your lifetime.

Power of Attorney for Healthcare. The appointment of a hierarchy of agents to make medical decisions for you in the event of your disability is essential to every estate plan. The risk of having either the legal community or the medical community make any type of medical decisions is not acceptable. You need to specify exactly who can make these decisions so that the family can “trump” both the medical and legal communities and be assured of having the control to make the decisions in the event the need arises.

HIPAA. The Health Insurance Portability and Accountability Act of 1996 was signed into law on August 21, 1996. This federal law included some very important new protections for millions of working Americans with preexisting medical conditions or who might suffer discrimination in health coverage. Unfortunately this legislation has also been interpreted to prevent a spouse, parent or child from being able to access the protected medical information of their family members and every properly planned estate should have a written authorization pursuant to HIPAA authorizing certain people to be able to access protected medical records for purposes of medical decisions, to obtain copies of records or test results for second opinions or for billing records for insurance submittal and payment tracking. This is a very important area and if your estate plan does not currently include this authorization it should be updated as soon as possible.

Living Will. The living will is a second form of healthcare directive that is used in the relatively rare instance where someone is in an irreversible coma, a vegetative state or is terminally ill. This can also be a "do not resuscitate" order or used to permit the agent to take action to avoid certain types of treatment that may only unnecessarily prolong the inevitable and let someone die with dignity. It is quite important that this document be carefully and properly prepared, as when and if needed, you will have conferred a great deal of responsibility upon your agent.

Power of Attorney for Financial Matters. This type of power of attorney is intended to permit your agent (typically a spouse, child, parent or close friend) to handle financial matters in the event of your disability. This can include filing and signing income tax returns, funding of your trust, management of any business interests, collection of your mail, paying your bills, caring for your pets, as well as handling investment matters.

Advanced Planning for Larger Estates. When dealing with estates that are expected to generate estate taxes (currently estates in excess of $2,000,000), additional strategies will be required to reduce or eliminate estate taxation. Some of these techniques will involve structuring of the estate to obtain discounts for estate tax purposes, transferring wealth during your lifetime to avoid the estate tax on assets which you own at the time of your demise, and gifts that are leveraged on a tax-favorable basis due to the time value of money. These types of solutions are entirely dependent on each family, the type of assets and the amount of control over the assets that one desires. Some of the more common techniques involve the use of Qualified Personal Residence Trusts; Grantor Retained Annuity Trusts, Charitable Remainder Trusts, Charitable Lead Trusts, Family Foundations, Family Limited Partnerships, Family Limited Liability Companies, Donor Advised Funds, as well as other tax-favorable solutions.