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Estate planning is more than just a will, power of attorney
or other document designed to distribute your property. It
is a process of identifying your goals and taking steps to
achieve those objectives including the preparation of appropriate
documents. However, the process does not end there; certain
additional steps are also required to ensure that your assets
are owned in a manner that will allow your objectives to be
achieved in the most efficient manner.
The process of planning your estate must begin with identifying
your objectives. It is difficult to plan unless you know where
you want to be when the planning is complete. An estate planning
attorney who does not start with the client's objectives is
unlikely to achieve results that are entirely satisfactory
for the client and his or her family. Estate planning objectives
vary with the client but many that I frequently hear from
my clients are the following:
- Protecting my spouse after I die
- Avoiding probate
- Saving estate taxes
- Passing on the family business
- Making gifts to my family or charities
- Protecting my assets if I require nursing home care (sometimes
referred to as "Medicaid planning")
- Managing assets in the event of my disability or incapacity
While each of these are laudable objectives, not all will
apply in every client's situation. Consequently, it is important
for the client to discuss his or her desires with the attorney
so that the estate plan will be consistent with the client's
objectives.
The process of identifying your goals and preparing an estate
plan may also involve the input from other professionals you
work with. It may be important for your attorney to consult
with your accountant, financial advisor, insurance agent, trust
officer or other professionals from whom you seek advice. Keeping
the lines of communication open between you and your advisors
will ensure that your estate plan will incorporate all of the
appropriate considerations and opportunities.
Once your objectives have been identified, your attorney can
begin the preparation of documents and take the steps necessary
to achieve these objectives. The documents prepared for one
client may be dramatically different than for another. Possible
documents may include the following: will; power of attorney;
community property agreement; trusts for children, grandchildren
or others; living will; and revocable living trust. A complete
estate plan must include at least a will, power of attorney
for financial matters (often referred to a durable power of
attorney), power of attorney for health care, and a living will.
In addition, a married couple may have a community property
agreement, although such an agreement may not be appropriate
under all circumstances and you should not sign one without
the advice of your attorney. A community property agreement
is generally inappropriate for married couples with an estate
exceeding the exemption amount for gift and estate tax purposes
or when one or both spouses are facing a long term care situation.
A financial power of attorney and a health care power of attorney
are important components of any thorough estate plan. Powers
of attorney are efficient and cost effective means of providing
for your financial and personal needs if you become incapacitated.
In both cases, you appoint another person (called an "attorney
in fact" or "agent") to make decisions for you
in the event you become incapacitated. It is advisable that
you name at least two individuals to make decisions, either
together or in successive order. For example, you may name your
spouse as your attorney in fact, and a child to be the alternate
attorney in fact in the event your spouse is deceased or is
also incapacitated. However, it is generally advisable to name
only one person at a time to make health care decisions for
you. I discourage naming co attorneys in fact for health care
decisions. Doing so may decrease the efficiency in which your
health care needs are addressed if two or more individuals must
agree and consent to each of your health care provider's recommendations.
A properly drafted and executed will is essential in virtually
every estate plan. Your will allows you to identify the person
you wish to administer your estate at death (referred to as
the "executor" or "personal representative"),
designate guardians for minor children and establish a scheme
for the proper distribution of your estate. If you intend to
leave your estate to minors, young adults or others who may
lack the skills to properly care for the assets he or she receives
from your estate, you should consider including appropriate
provisions for the management of the estate (referred to as
a trust) until the intended beneficiaries reach an appropriate
age or position in life (such as graduation from college or
other clearly identifiable standard) before the estate is distributed.
The trust may include appropriate distributions for the beneficiary
and you may name the trustee of the trust under the terms of
your will.
It is also important to remember that a will does not control
"non probate" assets such as joint bank accounts and
assets with beneficiary designations. For example, if you name
a child as a joint owner of your bank or brokerage account,
he or she may become the owner of the account on your death
and will have no duty to divide the assets with the other beneficiaries
named in your will.
Many people believe if they have a will they can avoid probate.
This is not true. Your will is a "blueprint" for the
probate of your estate upon death. There are several ways in
which probate may be avoided but the most common is the use
of a revocable living trust. Because the probate process has
been vastly simplified under Washington law, there is rarely
a reason to use a living trust solely for the purpose of avoiding
probate. Nonetheless a living trust is appropriate under certain
circumstances and an experienced estate planning attorney can
assist in determining whether a living trust should be considered.
Living trusts are particularly effective if you own real estate
outside the state of your residence. Without a living trust
(or other means to avoid probate) your estate may require a
probate proceeding in your state of residence and every other
state in which you own real property. This may increase substantially
the overall cost of the administration of your estate.
For married couples with "taxable estates" appropriate
provisions should be included in the will or living trust to
minimize estate taxes. In general, a taxable estate is one in
which the fair market value of the estate assets exceeds the
estate tax exemption amount in the Internal Revenue Code. This
amount is $1 million dollars in 2002 and 2003 and is scheduled
to increase to $3.5 million dollars in 2009. Estate taxes are
repealed in 2010. However, in 2011 estate taxes are reinstated
and the estate tax exemption amount will be $1 million dollars.
If appropriate provisions are not included, with tax rates of
up to fifty percent, substantial additional taxes may be payable
on the death of the surviving spouse. It is also important to
remember that the "estate" for tax purposes includes
all assets owned by the decedent, not just probate assets. For
example, the death benefit of a life insurance policy and retirement
plan benefits are included in the estate for purposes of calculating
the estate tax due. Many planning opportunities are available
for reducing estate taxes but, in most case, planning well in
advance is necessary.
Whether you plan your estate with a will or living trust,
naming your executor, trustee and other fiduciaries can be the
most important decision in the estate planning process. The
probate of your estate (or the administration of your living
trust) can be a difficult and time consuming process depending
on the value of the estate and the assets involved. Many people
prefer to name their children or other family members to administer
their estates. You should consider whether the people you name
have the time, inclination and capability to take on the responsibilities
of administering the estate. Consider the use of a professional
trustee such as a bank trust department to administer your estate.
While professional trustees are paid a fee, this approach may
result in substantial tax and other savings, reduced legal fees
and minimize the chance of family conflict.
The transition of the family business also requires advanced
planning, especially when family members are involved in the
business. Through lifetime gifting and other strategies the
business may be passed to the individuals you intend to own
and operate the business. It is generally ill advised to have
all children own a business in which only a few of them are
actively involved in the business. Businesses with substantial
value and complexity may take many years to properly position
for transition to the next generation and the planning cannot
wait until the final days of the senior generation. Family disputes
have been the downfall of many successful family businesses
through the years.
Planning your estate is an important part of proper business,
financial and personal planning. It is more than the will, durable
power of attorney, etc. It involves a process of identifying
your objectives and taking the steps necessary to achieve your
objectives.
©Copyright 2003, Landerholm, Memovich, Lansverk & Whitesides,
P.S. |
