I was reading a Forbes magazine article the other day entitled “Make a New Year’s Resolution to Give Your Estate Plan a Checkup” by Deborah L. Jacobs, and I was reminded about how much people dislike going to visit their estate planning attorney (I think we’re right up there with dentists, probably higher). One may wonder what is the point of planning ahead, and I’d like to give you my top five reasons why it is important.
- You may not have a huge estate, and therefore, may not think that having a Will or trust is important. However, estate planning is more than that – it’s planning for incapacity, as well. What if something happens and you cannot make legal or financial decisions? Have you appointed someone to do that for you? Have you named someone to be your healthcare surrogate to make medical decisions for you? Do you have a living will that specifies whether you wish to be kept alive by artificial means? A durable power of attorney, living will and health care surrogate designation are important for people of any age from the time someone becomes an adult at the age of 18 and older.
- If you have even a modest estate, you may find it desirable that your assets do not pass through probate at your death. A Will cannot help you to avoid probate – it tells the Court who you want to administer your estate, and who you want to have your assets. A Will also becomes public record. A revocable living trust, on the other hand, is private and can help you avoid probate. Not everyone needs to have a revocable living trust and there may be easier ways to avoid probate. Other ways to avoid probate include having beneficiary designations on assets (such as life insurance and retirement accounts), making bank accounts payable on death, or even owning assets jointly with another. It is important to speak with an attorney to help you determine what is in your best interest because not all circumstances are the same.
- If you have a minor child or special needs child, planning ahead is especially important. I had someone call me the other day to say that the father of her children had passed away leaving the minor children as beneficiaries of a $100,000 life insurance policy. In Florida, if a minor child inherits more than $15,000, a guardianship must be established over the property of the child. This means court involvement, attorneys fees and costs, and the child receiving the money when they turn 18 years old. If only the father had planned ahead, he would have avoided having a court decide when and how his children will be able to use the money from the insurance policy.
- Has it been five or ten years since you last had your estate planning reviewed? Just like you go to a doctor to have your physical check-up, you should also have a review of your estate plan (thankfully, not as often as having to go to the doctor). I usually tell clients that it is advisable to have a review of your estate planning documents every 3 to 5 years, and whenever you have a major life change (marriage, baby, divorce, death) of someone who is part of your estate plan. For example, I have a client who does not have any children and wished to leave all her assets to her niece. All of her estate planning documents list her niece as the beneficiary, her agent under her durable power of attorney and her healthcare surrogate. She recently had a falling out with her niece and called to tell me that she wants to remove her niece from her estate plan completely. She was concerned because she is having health issues and did not want to wait too long, in case something happens to her.
- For those who are lucky enough to have a substantial estate (especially in this economy), you should consider the fact that the estate tax exemption amount is going to expire again at the end of 2012. The estate tax exemption amount is $5.12 million (indexed for inflation, and it was $5 million last year). If you do have a revocable trust, now may be a good time to have it reviewed by your attorney to make sure it still accomplishes all your goals. You should also consider that, since we do not know what is going to happen next year given the behavior of politicians in Washington, D.C., now might be the time to consider transferring assets out of your name in order to save taxes should the exemption amount go back down to $1 million (which is what will happen if Congress fails to act before January 1, 2013). Finally, if your spouse died in 2011, you may want to consider filing an estate tax return even if no estate tax is due in order to take advantage of the portability provision which allows a surviving spouse to add the deceased spouse’s unused $5 million exclusion to their own.