Making Sense Out of Chaos; Is Estate Planning Dead?
By Harold S. Small, J.D., CPA (inactive), AEP
For years the public has thought of estate planning as being for the wealthy and to save estate taxes. Unfortunately most people fail to realize that the saving of estate taxes was desirable, but it was not the primary focus of estate planning. Simply stated estate planning is the process to ensure that desires and wishes relating to the distribution of assets is accomplished. As a part of that process we help clients avoid probate administration, the cost of probate administration, and also maintain privacy relating to their assets and their asset distribution wishes.
Recently President Barack Obama announced the framework of an agreement with the Republican leadership of the Congress. Among the items in the agreement is the concept/provision that estates of under $5,000,000 will not be subject to estate taxes. The effect is that most Americans will not be subject to either an estate tax upon death and they will not need to file a federal estate tax return (IRS Form 706). Because of that concept, the question posed to me and to others is whether estate planning is dead if this $5,000,000 exemption (or a different but significant amount) is made effective. The simple answer is no.
The more comprehensive answer is that by having appropriate estate planning documents in place individuals can accomplish the following:
- Directions can be provided relating to the distribution of assets from an estate – who gets what and when?
- Probate can be avoided if the assets are placed into a living trust.
- The person creating the trust (commonly referred to as Trustor or as Settlor) designates who will act as the Trustee of the Trust to administer their Trust if they are incapacitated or upon their death.
- While the probate process involves filings that are a matter of public record (e.g. an inventory of estate assets and the filing of the will with the court), the administration of a trust is a private process and not accessible as a part of the public records absent litigation.
- When there are minor children, the execution of a will can provide directions relating to who is to take care of the children if something happens to the parents and also who takes care of the assets of the minor children during their minority.
- We will still use life insurance to create larger estates (more money/assets than would otherwise exist for the benefit of family members following death).
- We will still use disability insurance policies to provide continuing income after the onset/occurrence of a disability.
- We will still use long term care insurance to provide payment benefits for long term care.
- We will still use Advance Health Care Directives (frequently referred to as living wills) to provide directions for what is to occur when the signing party is no longer able to make health care decisions for himself/herself.
- We will still use powers of attorney where appropriate so that actions may be taken for the benefit of the person signing the power of attorney.
- There will still be gifting of assets, although the timing and nature of gifting may change.
- People can still provide for charities in their estate planning documents and their gifts will be driven by more altruistic reasons than estate or income tax avoidance.
- Beneficiary designations are still needed for qualified employee benefit plans.
- Beneficiary designations are still needed for life insurance policies.
As you can see, there are still a number of reasons to do estate planning and they all existed before 2010 (we have no estate tax for estates of persons that died during 2010). These will continue to be appropriate reasons and actions to take even with a $5,000,000 exemption from estate taxes or any other amount or no estate tax.
We assist clients in dealing with these areas and satisfying their needs by the preparation and drafting of wills, trusts (both revocable and irrevocable), advice relating to the acquisition of life insurance, disability insurance, and long-term care insurance, the preparation of Advance Health Care Directives, gifting, and other estate planning documents.
For those with minor children, it is important that at a bare minimum that they have current and effective wills that provide directions to the Court as to who will be the best person/people to act as their guardian.
While Congress wrestles with what to do with estate taxes, individuals should understand that regardless of the outcome, estate planning is still important. Think of it as asset distribution planning. For example, when a couple is going through a divorce/marital dissolution it is important that their existing estate plan be reviewed and new documents executed to effectuate their desires. More importantly, think of estate planning as providing guidance and peace of mind for family members following a death.
Consideration should be given to removing from the file drawer the will or trust that was executed under the old law and reviewing them to see what asset distribution provisions need change. Then you should call your attorney to seek his/her advice regarding what changes are needed to those documents to carry out your wishes and also give consideration to the law changes and the impact that they may have. See my article on “Family Asset Distribution Planning: that may be helpful to you as well as the article about “Estate Planning and Choosing an Attorney.” If you do not have a will and a trust, then call an attorney to schedule an appointment and have these documents prepared for you.
THE FOREGOING CONCEPTS AND IDEAS ARE GENERAL STATEMENTS AND ARE INTENDED TO PROVIDE CONCEPTS FOR CONSIDERATION IN BUSINESS AND TAX PLANNING. CAREFUL CONSIDERATION NEEDS TO BE GIVEN BY THE READER REGARDING THE USE AND APPLICATION OF THE CONCEPTS. YOUR LEGAL AND TAX COUNSEL SHOULD BE CONSULTED BEFORE THE IMPLEMENTATION OF ANY OF THE IDEAS INDICATED HEREIN OR USE OF THE INFORMATION CONTAINED ABOVE. SHOULD YOU HAVE QUESTIONS REGARDING THIS MATTER, HAROLD S. SMALL, ESQ., CAN BE REACHED AT 12526 HIGH BLUFF DRIVE, SUITE 300 , SAN DIEGO, CALIFORNIA 92130 OR AT 858.759.4600.
© 2010 by Harold S. Small, J.D., CPA (inactive) , AEP