Failing to properly plan your estate can put your family in turmoil for years after your death. Tax avoidance and saving money is a major part of estate planning – when done properly, planning can minimize or eliminate federal estate taxes on most estates. To take advantage of these opportunities, you must be thoughtful and plan your estate early. Paying extra taxes is not the only consequence of improperly failing to plan. If you do not carefully plan then assets could go to the “wrong” people or money that should have gone into a trust will go to a beneficiary outright and could be wasted.Common excuses for failing to plan are:
1. I have “no money”. – (a) You may be cash poor, however, other assets also count when Uncle Sam is totalling up the taxes. If not planned properly, money in IRA’s will be subject to Federal Estate Taxes and Income Taxes; life insurance proceeds and assets that could easily have been sheltered will be subject to Federal Estate Taxes; real estate or businesses may have to be sold immediately (at fire sale prices) to pay taxes. (b) Further legal fees to plan the estate are much less than if you do not plan and there is a court battle. (c) Long term health care insurance premiums can range between $500.00 and $5,000.00 annually depending on your age and health. It is still a valuable and affordable technique to protect your assets in the event of an illness. These policies can be customized for your needs and budget.
2. I have insurance, my family will be protected. – Life insurance provided by your employer is probably not sufficient to care for your family after your death. Generally, it is only one or two times your salary. This will be depleted in a few years. Remember that a homemaker, although not earning income, represents significant value to the home economy. If a homemaker were to die, his or her services must be replaced. Insurance is necessary to cover the additional expenses.
3. I’ll think about it tomorrow – Procrastination is human and can eliminate or limit the best tax planning techniques. Clients come to us with significant estates very late in their lives and after their spouse has died. If both spouses are alive, we can take advantage of the Bypass Trust and shelter up to $1.2 Million Dollars in assets. Even without a spouse, we can devise other techniques to save taxes; if we have time.
4. I will just give away all of my assets before I die. – You will still be subject to Gift Taxes (which mirror Federal Estate Taxes). Further, the recent Kennedy-Kassebaum Bill will make this a criminal act if it is done for Medicaid planning.
5. My family knows what I want. – Life is very complex today. There are second and third marriages; children from prior marriages; dependent parents; family businesses, etc. You should not rely on anybody but yourself (and a good estate plan) to effect these wishes. Even if your family has all of the best intentions, they just may not know what you want or they may not have the authority or the power to effect your wishes.
These are all very significant matters that should be addressed in a timely fashion. We at WJ&L, LLP are here to help you identify potential problems and avoid those problems in your estate plan.
Kimberly A. Paton is a partner at WJLP and is the chairperson of the Estate Planning, Probate, and elder law department.