Can you believe that seven out of 10 people die without having planned their own estate plan? It is true, and it must be with good reason. Maybe they know something you don’t know, right? Next time someone convinces you that procrastinating with an estate plan is an acceptable thing to do, consider the following which help support the conclusion that an estate plan isn’t necessary:
Almost everybody needs to do some estate planning. Even the person with no money in savings and lots of debt needs to think about executing at least a simple will. There is one simple reason for this… who will take care of your kids if you should die? It is not uncommon for long drawn out battles to take place if both parents should pass away. Both families want to care for the children. You can avoid this by executing a will which provides who shall get custody of your children. Don’t put your children through the drama of a huge family fight, while they are battling the intense pain from losing their parents. “I don’t have any children either” Even a person without money or children probably has desires and wishes for how their health care should be administered if they were to become incapacitated. I try to execute complete estate plans, even for people without substantial assets. This generally includes a Durable Power of Attorney for Health Care as well as a living will. This allows you to appoint a person to make your medical decisions for you if you are unable, as well as allowing you to make decisions regarding life support, if you were to be in a persistent vegetative state or irreversible coma. Additionally, if you have a mortgage or other significant financial obligations, a Durable Power of Attorney for Financial Affairs will be added to your plan. This allows you to appoint someone to take care of your financial affairs as well as many other elements of your personal life, should you be unable to do so yourself.
A standard revocable or living trust does absolutely nothing to avoid estate or gift taxes. They do avoid the high cost of probate, if they are funded properly. However, they do not reduce the Federal Estate and Gift Taxes, which climb to a 55% bracket very fast. Yes, 55% of your money could go to the government instead of your family if you don’t plan correctly! To make sure you are covered correctly, call me and let’s discuss estate taxes.
An A/B or “By-Pass” trust is a great tool to help reduce estate taxes. It essentially allows a married couple to pass $22 million to their heirs without estate tax. However, there are tools for people with larger estates as well. Irrevocable life Insurance Trusts, Family Limited Partnerships and Charitable Remainder Trusts are all common tools to utilize. Call me, and let’s discuss these advanced techniques.
Although some attorneys charge very large fees to implement estate plans, it needn’t be a costly endeavor. I generally charge a flat fee for the work I do, after we determine what you need to complete your estate plan. Almost without exception, this works out to a much less expensive way to complete your legal work than the more traditional hourly billing. I charge extremely competitive rates for my work– Rates which most people can’t refuse!
Although IRAs and 401ks are great tools to defer taxation, they can accumulate too much money. Yes, too much! The IRS allows you to build money in these financial vehicles without paying income tax each year. However, the IRS does expect payment of taxes sometime, that time is when you withdraw. Therefore, each dollar of “qualified” money, as it is known, is subject to income tax upon withdrawal. If you die with this qualified money, your heirs won’t get any money until the IRS gets it’s income tax, it’s estate tax, and possibly it’s penalty tax. The estate tax kicks in if your gross estate gets over $600,000 and the penalty tax kicks in if your qualified money gets in the one million dollar range. These taxes can wipe out upwards of 75% of the money you planned on giving to your heirs. Proper planning can reduce this quite a bit!
Do you know what one of the most proven and effective ways to pay for estate taxes is? Although allowed by the IRS for a number of years, life insurance has only in recent years become widely used as a means of paying estate taxes. The IRS has narrowly defined laws which allow the passing of life insurance to your heirs free of tax, as long as you do not have any incidents of ownership over the policy. Life insurance is an incredible way to provide a cash flow to maintain a person’s accustomed lifestyle, cash to pay taxes, liquidity to cover other costs, as well as the piece of mind it has always been known to provide.
Reviewing an estate plan is crucial to its ultimate success. There are many reasons why estate plans may need changes. Among things to consider are family changes such as a new marriage, a recent divorce or new children in the family. Financial circumstances can change to the extent that what was once an appropriate plan is now inadequate for your level of net worth. Tax laws change, which can make a dramatic effect in the effectiveness of your current estate plan. Another time it is important to review your estate plan is if you move, as some states have different laws which apply to the validity of your estate planning documents executed elsewhere. Most people do not have the skills, experience or knowledge to even know what to look for in their current plan. Let me review your estate plan, and make sure it is appropriate for your needs today.
Unfortunately, it is all too common for the family pet to be forgotten about when planning for the future. However, for many of us, our pets are a big part of the family, and proper planning should therefore include them as well. If you were to become incapacitated, and unable to care for your pets, someone needs to have the authority to provide for them. Both to remove the pets from your home as well as to access funds to pay for the animal. This can be accomplished through the proper provisions in your Durable Powers of Attorney. If you were to pass away, your will should provide for a person to care for the animal, possibly a small sum of money to care for the pet, and any other wishes you may have in regards to the pet’s health and maintenance. Additionally, you should make advanced arrangements for the care of the family pet from the date of your death to the time the executor begins administering the will. This can be several months, so it is important to keep this in mind when completing your estate plan.