Estate Planning: Some Keys To Real Success and 5 Mistakes to Avoid

Taxation of estates is rapidly changing…and, in many ways, for the better. 

But there are traps for the unwary AND the simplicity of the new tax laws (many families no longer have to file federal estate tax returns) offers some really underutilized new advantages that a savvy client can use to protect his or her family and wealth. 

This brief article will review the dangers and will reveal some powerful opportunities you may not yet be aware of.

The History-

As recently as 2001, the federal estate tax exclusion (the amount you can leave heirs - including life insurance - without paying the FEDERAL estate tax) was $1 million with a maximum estate tax rate of 52% . By 2009, it was $3.5 million. The exclusion for 2015 is now $5.43million with an estate tax rate of 40 percent.  On top of all that, Pennsylvania has an Inheritance Tax that ranges from 0% for spouses to 15% for many heirs.

The Opportunity-

The increase in the estate tax exclusion and tax rates over the last 15 years means:

That many people no longer have to file estate tax returns (but to protect their heirs, many still do);

A greater emphasis on income tax planning as part of the estate planning process; and

That people can now focus on traditional estate planning, making sure assets pass efficiently to family members and charities, that family disputes are minimized, probate and administrative fees are reduced, and heirs are protected from losing inherited assets in law suits and in divorces.

I’m often asked by professional organizations, companies and wealthy and moderately wealthy families to speak on these issues about what I have learned over the years and how to take advantage of the new laws.

But it’s hard for people to find the time to attend these lectures and to get the planning process started on their own. So what follows is taken from a series of presentations I recently made on estate planning, the new opportunities, and some of the mistakes people make and that you should avoid.

The Five Mistake and What To Do-

1. Procrastination:

Have you procrastinated when you thought about a new estate plan or updating an existing plan? Sure. You’re busy. Work and life’s demands are time consuming.  It’s hard enough getting the basics done.

And, with some law firms it’s very time consuming and raises issues you’d rather not confront.

But, this is a high reward activity.  And, when you delay it, at least a part of your brain (and perhaps another person) is nagging at you to do it.  For that reason alone, you feel better when it’s done.

So look for the following to make it easier to do and more rewarding.

Find a firm that has a clear process that gets it done. 

You want a firm that will:

* send you a clear questionnaire or diagnostic form (they need information to advise you and to make sure that your beneficiary designations match your planning.

* is willing to give you a lower cost or complimentary initial session to make sure that they are a good match for you and that you like the lawyer, price, and process.

Note that it’s often hard for experienced lawyers to quote you a fee on the phone since you need to share information about what you want and they have to help you pick the best options.  But, make sure that they tell you the price (as in a flat fee) or the approximate cost (if the work is hourly).

*set up your planning appointment AND a signing appointment so that you know it WILL GET DONE.  There is nothing worse that starting the process and never finishing.  If you’re going to do it then finish it and get all of the advantages for your loved ones.  However, experienced and well respected lawyers will often have a waiting list or a wait for an appointment.  After all, they have a great reputation for a reason.  So set that appointment to get started and to sign well in advance.

* and don’t worry about perfection.  Getting something modern and up to date is almost always better than nothing or out of date plan documents.  And, estate planning is not an exact science.  Many times in developing an estate plan for your family there is not a right or a wrong answer.  Just make the best decision you can at this time.  Remember most estate planning documents are modifiable, amendable and revocable.  If your family circumstances change you can review and change your estate plan. You’re not locked in.

2. Simplicity and Complexity:

Yes.  By all means, keep things simple ... do not over plan by creating complicated dispositive provisions in your estate planning documents unless it is necessary.

But in some cases, simplicity can create complexity.

What?

Well, keeping your estate plan simple does not mean you won’t create an estate plan that delays distributions to children by using a revocable trust, a special needs trust or creating gifts to grandchildren or gifts to charity. It doesn’t mean that you might not need a GRAT (grantor retained annuity trust) or QPRT (qualified personal residence trust) because they may be perfect for you and your family.

And simplicity doesn’t mean a short document that fails to provide the structure and powers that your executors, trustees, and trust protectors need to avoid the probate court.

It simply means that it should make life as simple and the costs as low as possible while still achieving your goals.

3. Flexibility:

Many of the estate plans we review and which were created before 2013 fail to create flexibility.

Trusts, even a revocable, trust under will, (and in some cases irrevocable) trust, can allow for changes in distributions to trust beneficiaries depending upon circumstances.

 Trusts, as a general rule, should include provisions to allow the division and or merger of trusts for the same beneficiary into one trust for the beneficiary, allow for a change in the applicable state law and the place of trust administration (perhaps even allowing the trust to move off shore in certain cases).

In addition, allowing a beneficiary, trust protector, or a class of beneficiaries to remove an appointed trustee can avoid disputes in probate court.

Today the most important and sometimes overlooked document in a good estate plan is the financial durable power of attorney.

If you have a cohesive family, naming a family member as an agent under a durable power of attorney usually makes sense. Today we are drafting many financial powers of attorney with broad powers especially powers to allow the agent to qualify for health care benefits — for example, Medicaid.

4. Solve Problems Do Not Create Problems:

Avoid placing a family member in a difficult position. While it may make sense to name a sibling as the trustee under a trust for a brother or sister it is often difficult to be ones “brother’s keeper. “ We have also seen where an individual in a second marriage names their children as trustee of a trust for their stepmother or stepfather.

While the children and the stepparent may have a good relationship once the spouse dies this relationship can cool.  Naming a neutral party as trustee and or as a trust protector can avoid these inherent conflicts.

5. “What We Have Here Is A Failure To Communicate”:

Do not be afraid or too proud to communicate with your advisers AND with your children.

It is difficult to think of our children or grandchildren (even our adult children) being involved with our health care and financial affairs.

However, the facts are clear that we will all age, we can become infirm or lose cognitive abilities, and at some point we die.

We have often had children tell us their mother or father has never explained their estate plan, their finances, their wishes for burial and a funeral or how they wish to live.

This can be especially problematic if you’re using trusts to protect your children from losing an inheritance in a divorce or lawsuit.  If that appeals to you, you should absolutely consider sharing some information with your children so that they understand and can take full advantage of these trust protections.

In our firm, we facilitate family meeting with parents and their adult children (with as much or little financial disclosure as you want).  These meetings often eliminate or minimize problems and speed up estate and trust administration while reducing costs and fees.  These family meeting often save not only strife and anguish but also generate reduced costs and fees by avoiding disputes and preparing heirs for the transition of wealth, businesses and or real estate or other assets.

What To Do:

It’s always good to strike while the iron is hot.  Now that you’re thinking about it…go ahead and solve the problem.  Otherwise, you get distracted, pressures amount and you still don’t have the estate planning you need and that your spouse or loved one wants you to have.

So, book a complimentary estate planning consultation by calling our office at 610-933-8069 and while you are speaking to one of our Client Relations Managers, ask to receive a rush copy of our new and more full and complete report “The New Rules of Estate Planning” or click the following link for immediate access: http://bit.ly/1FMTYpD.

To download a copy of “Enhanced Estate Planning – 2015 Edition” click this link: http://bit.ly/1nysXyo to go directly to the report.

 

The Author and Team:

Attorney David M. Frees heads a team of great Pennsylvania lawyers practicing trusts and estates law. They have offices in Paoli, Phoenixville, and West Chester, Pennsylvania.  Frees has appeared on numerous radio and television programs and is a regular instructor of programs for lawyers practicing estate, trust, and elder law.