People hear the word “estate” and think that end-of-life financial planning is only for the extremely wealthy. You couldn’t be more wrong. The extremely wealthy have the knowledge to surround themselves with lawyers and accountants to protect them from the dangers of a misplanned estate. The people most harmed by probate and inheritance taxes are the middle class of this country.
I am married and have a daughter who is almost two years old. I like a home that used to have equity but is now mostly mortgages. I rent my car, own a small business, and pay student loans for my wife and I. We’re a two-earner household with some money in the bank, but neither of us will be retiring any time soon. If this scenario is similar to yours, you probably need an estate plan similar to the one I currently have. My estate plan includes the following:
Two Revocable Living Trusts – You and your spouse will both become co-trustees of each other’s trust. You have the same access to your assets as you do now. When the first spouse dies, a newly created bypass trust is funded from the maximum allowable tax-free distribution for the year of death. The remainder of the assets in the deceased spouse’s trust will fund a newly created marital trust. The surviving spouse has access to all of the assets of the spouse’s own living trust, as well as the newly formed bypass and marital trusts. By setting up the trusts in this way, on the death of the surviving spouse, we can pass all of the estate on to the children while only paying half (if any) of the estate tax. This technique will save your children over $500,000 in estate taxes. Additionally, the Trust avoids probate proceedings entirely (saving tens of thousands of dollars) and provides your children with full asset protection, meaning no one can touch the assets you leave them, including divorce, creditors, or even litigation.
Two Assignments of Property In Trust – This document helps fund the trusts. We will sign and record deeds for all properties. For all bank and brokerage accounts we will change title. However, for personal property we do not have a written title so we place the property in the trust and avoid probate proceedings by using a title transfer to the trust.
Pour-Over Will – There are many disadvantages to distributing assets through a will. First, all assets must be buried. Second, the will provides no control over the distribution of wealth and no wealth protection for your beneficiaries. Another disadvantage is that a will becomes public once the person dies. Since the will is recorded and everyone can see it, we want to make it as easy as possible. We merely state that a trust exists and that the distribution is made by the trustee. We also explain that any assets that you forgot to invest in the trust during your lifetime should “overflow” into the trust immediately. The will is also used to name your children’s guardian.
Financial Power of Attorney – If you become incapacitated, either unconscious or mentally unconscious, you must determine who will manage your financial affairs. It is very important to have this document on file considering that most married couples travel and vacation together. If an accident happens to one of them, it usually happens to both of them.
Appointing Healthcare Proxies – In a similar train of thought to financial power of attorney, if you become incapacitated, either unconscious or mentally unconscious, you must determine who should make your medical decisions. In addition, the designation of the health care proxy should also state whether you would like your proxy to see your medical records. Without this HIPAA language, the hospital will not allow your surrogate to see your records and make an informed decision.
Living Will – If you are in an “end-of-life” condition, meaning you will only be kept alive by machines, the hospital will continue to keep you alive artificially no matter what your wishes are and no matter how how much it will cost your family unless you have a properly executed living will that would allow your health care representative to give the doctor the necessary authorization to “pull the plug”.
Execution and Funding – The biggest mistakes I see when reviewing other attorneys’ plans are the execution and funding of the will. I will be there to make sure all your documents are done correctly. I will have my employees act as witnesses and I will act as notary. After the documents are signed, I scan them and keep them on my computer as well as on my external server so you can get a copy if you need it. I will also help you with the financing of the trust. Creating trust is similar to building a safe; It can only protect what you put inside. I create the necessary documents and accompany you in the transfer of private accounts to trust accounts.
So many people wait until it’s too late. Tomorrow is not promised to any of us. If you truly care about your children and want to protect them both financially and emotionally after your death, it is imperative to implement your estate plan as soon as possible.