Why estate plans are still useful in light of recent tax laws

I recently spoke with a financial advisor who pondered whether estate planning attorneys were still relevant in light of the tax law changes this year.  For an estate under $5million, the planner felt that various financial products could adequately defer taxes and avoid probate.  However, estate planning attorneys see the picture differently.

Attorney Greg Hamilton has practiced estate planning for over 25 years, and notes that this rationale is a common misconception of financial advisors.  ”It comes from thinking that estate planning is only done for tax planning.  If done correctly, it is much more than that.  In fact, most estate plans are created for non tax reasons,” says Hamilton.

Below are Greg’s Top 5 reasons why an estate plan is still valuable to an individual, when done correctly:

1.  Protect your family:

An estate plan which includes a will and trust can protect one’s assets from creditors, or in the event of a divorce, and it can preserve wealth in the event of death.  Other tools such as a durable power of attorney and a medical power of attorney allow you to designate another person to manage your assets and make medical decisions for you in the event of your disability.  Deeds can be useful to transfer property before and after death.

This is especially important when children are the heirs. Without a trust which designates a delay in the distribution of assets, children can receive their entire inheritance by the age of 18.

A trust can address any and all concerns about to whom assets should be awarded and if and how they should be divided amongst various people.  While young couples who marry for the first time may have certain ideas about sharing everything with their spouse and children upon death, those decisions may change when a divorce occurs and second marriages with blended families result.

Here are some examples of a property division that take into account divorce, blended families, conduct of the heirs, disabilities or other special needs:

• Preventing a new spouse from receiving premarital assets that were intended to remain in the family for the benefit of the deceased person’s children.

• Preventing the division of assets between birth siblings and blended family siblings.

• Providing a greater portion of assets to children or other family members with disabilities.

• Allowing a new spouse and/or step children to share in the division of an asset equally with the deceased person’s children from a first or subsequent marriage(s).

• Putting a cap on a distribution of assets to a spouse who is spending excessively (gambling or using drugs, etc.) in order to preserve the estate for other family members.

4.  Planning for and properly funding a disability or long term care need should consider these and other issues:

• Where to live in the event of a disability?

• How will you pay for the cost of care for the disabled person and remaining family members?

• Who will take care of the disabled person and/or other family members?

• The estate plan can address these issues and make sure the finances are in place to carry out the plan.

5.  Tax planning:

This actually becomes the easiest piece of the puzzle if all the other areas mentioned above are properly addressed first.  The family can work with their estate planning attorney, financial advisor, and CPA to optimize tax planning strategies.

What are the downsides to a failure to execute an estate plan?

• Loss of asset protection;

• Loss of the ability to keep money or cottages in the family;

• Loss of family harmony;

• Pitting step parents against biological parents when it comes to the children;

• Disregarding what’s in the best interest of your senior parents in favor of protecting your self interest and your inheritance.  Some children will park their parents in whatever “senior home” is cheapest.

Greg Hamilton notes that clients often have misconceptions when it comes to creating their estate plan.

Some common client misconceptions include:

1.        “All plans are created equal”

“Some people have the idea that all estate plans and all attorneys are the same, and the cheapest one is best for them.  It is the family who will suffer if an inexperienced attorney puts together a plan using boilerplate language, rather than creating a plan that considers and meets the needs of that family,” says Hamilton.

2.        “I paid for a trust, I’m all set!”

While the trust does offer protection, all too often the client or his/her attorney fails to re-title the assets in the name of the trust. This means that the assets aren’t part of the trust, so the estate ends up being resolved through a lengthy or costly probate court proceeding, or a family feud outside of court.  It’s as though they never had a trust, because the one they paid for wasn’t funded and was therefore useless.

3.        “I prepared a will and a trust already”

Getting the client to see the value in creating a plan is step one, but it’s not a “one and done” kind of a deal.  That’s like saying you had a doctor check up once.  It doesn’t mean you’ll be healthy for life.  Laws change, your assets change, your family members change, life happens.  You should review your estate plan with your attorney at least annually and make appropriate changes along the way. Otherwise the plan becomes obsolete and no longer suits you.  You wouldn’t assume your cholesterol was still within the right limits just because you had it checked once 25 years ago, would you?

4.        “I’ll get around to it.  I have plenty of time”

We’ve all heard the saying, “Those who fail to plan, plan to fail.”  Estate planning is one of those things people put off and wish they hadn’t.  We can’t roll the dice with any certainty that we’ll be the 95 year old who peacefully died in his sleep and was as sharp as a tack until the day he died.  We may be the 30 year old secretary who dropped dead at her desk unexplainably, or the fit 40 year old marathon runner who had a heart attack.

Everyone has an estate plan of sorts, says Hamilton.  ”It will either be the one you create, or the one the State you live in has created for those who died without a will or trust.”  Which one do you want?  Hamilton noted that no one has ever asked him for an estate plan that looked just like the State’s default estate plan.

—————————————————————————————————————

Greg Hamilton is a nationally recognized speaker on Estate Planning.  He has been providing peace of mind to his clients for the past 25 years, by helping them successfully navigate through life’s transitions. For more information, visit his website.

Lori T. Williams is a 23 year attorney based in Birmingham, MI. She owns a legal referral and legal consulting business called Your Legal Resource, PLLC. She assists individuals and small businesses in need of legal advice or representation by connecting them with the right legal specialist for their situation. She also provides consulting services for attorneys and other professional service providers on how to generate more business through effective branding, marketing, networking, and by creating strategic partnerships. For more information, visit www.bestlegalresource.com.