To Plan Or Not to Plan...5 Estate Planning Pitfalls
By: Morris Law Group - May 27, 2015
1. You do not need to have an “estate” to have an estate plan.
Many people think that since they do not have an “estate,” they do not need to have an estate plan. Currently (in 2015) the combined estate and gift tax exclusion amount is $5.43 million. This means one can die with or gift during life (above the annual gift tax exclusion amount), up to $5.43 million in their own name before incurring a tax.
Husbands and wives may combine their exclusion amount and die with or gift up to $10.86 million before incurring said tax. With the threshold being as high as it is, there are a large amount of people we encounter who do not have assets equaling this amount.
It is important to think of estate planning as a two-tier process:
Tier 1: planning for the person (i.e. one's assets, person and children); and
Tier 2: tax planning (i.e. using various techniques for those people with taxable estates above the exclusion threshold amount). Just because one does not need tax planning, does not preclude them from needing planning for their assets, and more importantly, themselves and their family.
2. We all are going to die and we don’t know when.
Everyone thinks they are immune to death. Unfortunately, that is a fool’s game. We are all going to pass away and none of us know when. One who postpones preparing their estate plan on the hopes that they will be cheating death is merely cheating themselves.
Most of our clients actually feel MORE at peace when they know their estate plan is in place and that their spouse, children and other beneficiaries will be taken care of in accordance with the client's desires and wishes.
Keep in mind that if one dies without an estate plan in place, assets will be distributed pursuant to the applicable statues and laws (which vary by state) and it will take time and money in the post-mortem planning stage.
3. Even if we don’t die anytime soon, no-one is immune to injury.
When one hears the words “estate plan” they immediately think of two documents; the Last Will and Testament or a Trust. While both of those documents are the heart of the estate plan, the ancillary documents that are prepared are sometimes equally as important and necessary.
A Durable Power of Attorney, allows the designated agent to act on behalf of the principal regarding financial matters.
A Durable Power of Attorney for Health Care Matters (a.k.a. the Health Care Surrogate), allows the agent to deal with the health related matters for the principal in the event the principal is unable to speak and/or decide for themselves. This will also be helpful in the event one is hospitalized, as the doctor will have a pre-determined individual who will be the focal person to talk to and make decisions.
The HIPPA Authorization document will allow the people selected to receive information from the doctor(s) and health care facility.
The Preneed Guardian form allows one the ability to decide during life who shall be their caretaker and legal guardian should the need arise. This can save the family a lot of time and money in dealing with the courts to make such a determination.
Finally, the Living Will (which became especially important in Florida after the Terri Schiavo case) allows an individual to decide if they would like to be kept alive artificially in certain circumstances. Although titled as “ancillary” documents, by their very nature, these essential documents are at times the more useful and practical ones.
4. My family will take care of my belongings once I am gone.
Many clients say, “everyone in the family gets along, so why do I need to do anything now. They will take care of it all when I am gone.” We always have to counsel our clients and tell them, “when it comes to money, trust us, issues will arise.” Why leave your desires to chance?
With a proper estate plan you can npull the purse strings from the grave." During your life, you can dictate who will get the diamond ring heirloom and who will get the primary residence. There may be some charitable gifts that you would like to make, which can also be planned for in the estate plan prior to death.
Similarly, you can decide whom you would like to be the guardians of your minor children, as well as who will manage any assets left to them. There is also generational tax planning and asset protection planning that can be done if one is proactive.
5. IMPLEMENTING the plan created.
Creating the plan is merely the first stage of the process. The next, and more important phase, is implementing the plan created.
For example, a Trust will only deal with, and dispose of, what is titled in the Trust’s name. With that said, if you have a Trust you should fund it during life, otherwise there will be a probate on those assets that were not retitled during life (and thus defeat one of the main purposes of having the Trust).
Our firm provides the client with a funding memorandum which details how various assets are to be retitled into the name of the Trust. We also offer further assistance if need be for those clients that request it of us.
You want to also make sure the people that you have appointed as your fiduciaries (i.e. your Personal Representative(s), Trustee(s), Agent(s), Executor(s), Guardian(s), Trust Protector(s), etc.) know their role and are accepting of it. While you may have confidence and trust in your fiduciaries (pun intended) you want to make sure those fiduciaries are accepting of the roles they will play.
Avoid these planning pitfalls. Take the most important first step and request a consultation today with the attorneys here at Morris Law Group.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.