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Estate Planning

“I want to control my property while I’m alive, take care of myself and my loved ones if I become disabled, and give what I have to whom I want, how I want, and when I want. Furthermore, I want to save every last dollar, professional fee and court cost legally possible.”

The worst plan is no plan.

There are three components to a successful estate plan:

I. Planning for Incapacity
II. Wealth Transfer Planning
III. Beneficiary Protection Planning

The Worst Plan is No Plan

If you suffered a serious injury today, would your family be able to obtain vital medical information? Would they be able to manage your affairs during your incapacity? Would they know your wishes about end-of-life issues?

If you died tomorrow, would your estate pass to the people you want to inherit? Would your estate have to pay gift and estate taxes? Are your beneficiary designations up-to-date?

Who will take care of your children? How can you protect your legacy to maximize its value to your children and their children?

Moore Family Law can assist you in developing an estate plan that will meet the needs of you and your family for generations to come.

 

Planning for Incapacity

If you suffered a serious injury today, would your family be able to obtain vital medical information? Would they be able to manage your affairs during your incapacity? Would they know your wishes about end-of-life issues? If you died tomorrow, would your estate pass to the people you want to inherit? Would your estate have to pay gift and estate taxes? Are your beneficiary designations up-to-date? Who will take care of your children? How can you protect your legacy to maximize its value to your children and their children? Moore Family Law can assist you in developing an estate plan that will meet the needs of you and your family for generations to come.

"Can’t my family take care of me?” Most people think that estate planning involves the transfer of wealth after death, but what if you lose the ability to manage your affairs because of incapacity? An effective estate plan will ensure that your family will not have to incur the emotional and economic costs associated with making decisions about health care or obtaining guardianship over your estate. It will also ensure that, to the extent possible, you will be well supported in your incapacity.

Avoiding court controlled guardianship and its associated time and costs is the primary concern when planning for incapacity. If you do not plan appropriately, there will be a vacuum of control, which can only be addressed by the method of last resort—the courts.

Example: Dawn thought she was going to live forever. She was only 55! Unfortunately, while driving home from her usual bridge night, she was blindsided by a speeding semitrailer and suffered serious head trauma. When her children arrived at the hospital, the intensive care nurse couldn’t tell them anything about their mother’s condition, citing HIPAA (Health Insurance Portability and Accountability Act). Her daughter went to Dawn’s house the next week to pick up mail and discovered that the house payment hadn’t been made and there was a roof leak that required immediate repair. Unfortunately, Dawn’s bank wouldn’t release funds for the house payment or the roof repairs, because Dawn hadn’t executed a durable power of attorney.

A careful plan will help you maintain control within your family and keep your affairs private. A comprehensive plan for incapacity will include the following tools:

Revocable Living Trust: Provides Maximum Asset Management Protection

When assets are held in trust, the trustee has full power to manage and protect trust assets. While you are alive and able, you serve as the trustee. If incapacity strikes, your successor trustee seamlessly steps into your shoes and continues the management and protection of trust assets. Your successor trustee’s powers are limited to assets owned by the trust.

Enhanced Durable Power of Attorney: Addresses other financial, property, and legal matters.

For non-trust matters, a durable power of attorney names an “attorney-in-fact” to act on your behalf in order to manage non-trust assets, file taxes, and act as your legal representative. Unlike the successor trustee, your attorney-in-fact is not treated as the owner of assets for management purposes, so the durable power of attorney may afford the attorney-in-fact fewer powers than a successor trustee of a revocable living trust.

Enhanced Health Care Directive: Controls Critical Medical Decisions

Health care directives serve two functions. First, a health care directive identifies the individuals entrusted to make medical decisions for you when you lack decision-making capacity. Second, the health care directive sets forth your specific health care wishes. Health care directives detail your wishes in the event that you are in a terminal condition, irreversible coma, or persistent vegetative state.

HIPAA Authorization: Ensures Family Access to Protected Health Care Information

HIPAA regulations strictly limit third-party access to your protected health care information. While HIPAA is designed to protect your privacy, it sometimes prevents your family from obtaining vital medical information. A HIPAA Authorization is necessary to designate “Authorized Recipients” of protected health care information.

Wealth Transfer Planning

The death of a loved one can be expensive both for the remaining family’s finances and emotional state, particularly if there is no plan in place. The family must make funeral and burial arrangements; they must notify extended family, financial institutions and other interested parties; they must identify debts; and they must protect assets and eventually transfer those assets to beneficiaries. They must identified and carry-out the loved one’s final wishes.

A good estate plan can help your family deal with the burden of administering and distributing your estate. Planning can reduce or eliminate the costs of probate. More importantly, planning can reduce the risk that your family will lose control and privacy of your affairs to the probate court.

Proper planning can also reduce taxes. Through the use of trusts and other planning tools, you can empower trusted family members to seamlessly control, manage, and continue the operation of unique family assets such as a business or the family cabin.

Example: Chris and Jenny have an estate valued at $6,000,000, including a home, a cabin, an interest in a business, investments and a classic car collection. If Chris and Jenny die without an estate plan, their heirs will need to file a petition in Probate Court to have a personal representative appointed to distribute the estate according to the State’s rules of inheritance. The home and cabin may need to be sold. The business interest will have to be identified and may need to be liquidated. The classic cars may need to be sold, even the 1966 Mustang Convertible. Perhaps most alarming is that all the assets and their disposition will be listed in public court papers.

Assets can pass in different ways at death. The method of transfer you choose is vitally important to your family.

Last Will & Testament: Using the Courts to Transfer Wealth

The traditional method of transferring wealth at death is the “Last Will and Testament.” Wills do not govern the transfer of property held in joint tenancy or assets with beneficiary designations. In order to be effective, the will must invoke the probate court’s jurisdiction at death. Many individuals choose other wealth transfer methods to avoid court costs and administrative delays as well as to preserve privacy.

Beneficiary Designations: Using Form Contracts to Transfer Wealth

Some assets, such as life insurance policies, retirement accounts and insurance policies can pass automatically at death by virtue of a beneficiary designation. While expedient, beneficiary designations are inflexible, requiring immediate transfer even when such a transfer might lead to undesired results. Moreover, beneficiary designations are rarely updated as often as family changes warrant.

Jointly Held Property: Using “Titling” to Vest Property with “Survivor”

“Joint Tenancy with Rights of Survivorship” enables property to pass automatically to the surviving “joint tenant.” However, when only one tenant remains, the asset will eventually be subject to probate upon that person’s death. Some individuals have concluded that adding another joint tenant will continue the “non-probate” descent of the property. But this strategy comes with a high price tag. Continued joint tenancy may result in increased capital gains exposure, as well as the risk of loss to the other joint tenant’s creditors.

Revocable Living Trust: Using a Coordinated “Funnel” to Transfer Wealth

A Revocable Living Trust provides a comprehensive alternative to other wealth transfer methods. It funnels all types of assets to the intended beneficiaries, without court intervention, unnecessary capital gains exposure, or the risk of loss to the beneficiaries’ creditors. It can also provide for more contingency planning than beneficiary designations, and can provide for the continuation of a protective trust long after the initial trust-maker has passed away.

Beneficiary Protection Planning

The concept of “inheritance” involves more than just the transfer of wealth. It is also about protecting loved ones, carrying on personal values, and creating a lasting legacy. You can protect your loved ones after you pass on by designating guardians for your children and establishing a spendthrift, incentive or lifetime inheritance protection trust.

Example: Tom and Mary have a $4,000,000 estate. They have four children: two are married with children, one is single with a drug and alcohol problem, and one is fourteen. Proper planning can ensure that their estate will pass to their four children, and protect the estate from inadvertently passing through divorce or being exposed to creditors. Tom and Mary can also condition the transfer of wealth upon sobriety, a value they highly prize. Finally, their youngest child can be cared for by someone they choose, as opposed to someone a court chooses.

Guardian: Serving as “Back-Up” Parents

If you pass away before your child reaches the age of 18, the law requires that someone be appointed as guardian to serve as a back-up parent. The guardian is responsible for the care, nurturing, education and discipline of your child. Your estate plan should nominate your desired guardian and provide clear instructions as to the way you wish your child to be raised in your absence.

Spendthrift Trust: Protection for Young, Financially Immature Beneficiaries

Minors cannot directly inherit from a will or trust; and young adults may not be capable of handling an outright distribution of their inheritance. For these reasons, parents routinely establish trusts to protect minors and young adults. The trust remains in effect until the children are at least 18, or the age that the parent believes the children will be financially mature and able to handle unfettered access and control of their inheritance.

Incentive Trust: Instilling Values and Providing Incentives for Desired Behavior

Parents often want to establish a trust designed to instill values and provide incentives for accomplishing certain milestones, such as the attainment of educational, career or social goals. Conversely, disincentive trusts can prevent distributions to children who make poor life choices such as abusing drug and alcohol, or engaging in other risky behavior.

Heritage Trust: All the Benefits, Plus Asset Protection

The purpose of this trust is not to govern the beneficiary, but to protect the trust from creditors and predators. The Heritage Trust will safeguard inheritances from divorces, judgments and creditors.

QTIP Trust: Good Protection for Blended Families

The QTIP (Qualified Terminable Interest Property) trust gives your spouse access to your assets after your death, but restricts his or her ability to direct how to distribute the assets remaining at his or her death. A QTIP trust can be beneficial if you wish to provide for your current spouse while ensuring that your children from a prior marriage receive the assets you intend them to receive. Even if the relationship between your spouse and your children from your previous marriage is cordial, a QTIP trust may be warranted. A QTIP trust will protect the trust assets from changes in your spouse’s life that might result in the disinheritance of your children.

A QTIP trust also provides the opportunity to take advantages of certain special tax benefits for the benefit of your spouse after your death. Your spouse may elect to treat some or all of the assets in the trust as part of his or her federal marital deduction; those assets are consequently not subject to estate tax at your death. Rather, those assets will be included in your spouse’s estate on his or her death. What is left in the trust when your spouse dies will go to your children or whomever you designate as a beneficiary.

Requirements of a QTIP trust are:

• All income from the trust must be payable to your spouse during his or her life;
• The trust assets must be used for the benefit of your spouse during his or her life;
• Your spouse must have the right to compel the trustee to invest the trust in income-producing assets; and
• QTIP trust treatment must be elected on your estate tax return.

A QTIP trust is intended to make life easier for your survivors. Too often, there is friction between children and surviving spouses, regardless of whether the surviving spouse is the children’s parent. A QTIP trust can alleviate that concern and perhaps help everyone to see that you have their best interests at heart.

Irrevocable Life Insurance Trust: Tax-Proof Your Insurance Protection

Generally speaking, life insurance benefits are not treated as income to beneficiaries, and are therefore not subject to income tax. However, life insurance benefits are subject to estate tax. You can protect life insurance assets by establishing an ILIT (Irrevocable Life Insurance Trust). Aside form the tax benefits, an ILIT can be used to ensure the payment of remaining estate taxes, a mortgage, or a business buyout. The ILIT also allows you more freedom to decide how you wish life insurance benefits to be distributed upon your death.

Family Bank Trust: Minimize Taxes, Maximize Flexibility

In a family bank trust, you create a trust for the benefit of your spouse and children (and possibly, their spouses and your grandchildren). Each year you may transfer an amount up to the annual gift exclusion for each beneficiary (currently, $5,000 for your spouse and $12,000 for each non-trust beneficiary). Your spouse manages the trust as Trustee and may make distributions for the benefit of the health, education, maintenance and support of the beneficiaries. If you and your spouse need money, your spouse can make a distribution to him or herself. Your creditors cannot reach the assets within the trust, because you are not a beneficiary. Your spouse and family beneficiaries are protected from creditors through these spendthrift provisions.