Why You Need an Estate Plan 2.0

Congress is currently engaged in the task of revising tax law, including provisions relating to estate tax. The current proposal calls for raising the estate tax exclusion amount (the threshold over which a person incurs estate tax liability) from the current $5 million per person plus annual cost of living increases to $10 million per person plus annual cost of living increase. Additionally the estate tax would eliminated entirely in 2024. While we am personally skeptical that this is a “middle-class” tax cut, whether the current exclusion is retained, doubled, or entirely eliminated, it will have no effect on the estate planning for 99.98% of taxpayers or our clients. 

Over the last 40 years there has been an overemphasis on trying to avoid estate taxes when talking about estate planning. This has fueled the misconception that estate planning is only for the wealthy who want to control their fortunes from beyond the grave and minimize the amount of taxes their estate might have to pay. The reality is, as the estate tax exclusion has increased over time and eliminated the concern of estate taxes for most people, protecting one’s family and avoiding the state probate process has become much more important. Estate planning creates your blueprint for taking care of your loved ones in those hardest of times after your passing, and taking care of yourself and the ones you love if you are incapacitated because of illness or accident.. 

There are four common documents that make up an estate plan, two of those documents address concerns about the "here" while the other two address what happens in the "hereafter." The "here" refers to a situation where a person becomes incapacitated and unable to make their own decisions while the "hereafter" documents address the administration of assets following a person's death. We will address each briefly in this blog and discuss each and more detailed in future blogs.

The "here" documents include the Durable Power of Attorney and the Patient Advocate Designation, which allow you to appoint others to make decisions for you in the event of sickness or incapacity. This ability is important because it allows a trusted family member or friend to make immediate financial, legal, and medical decisions if you become incapacitated, rather than having to go through a long and costly court process. 

The Durable Power of Attorney names a person who, usually upon your incapacity, has the authority to deal with your financial well-being, including arranging for payment of bills, filing insurance claims and lawsuits, and handling other business matters on your behalf. 

The Patient Advocate Designation appoints a person to make medical decisions on your behalf, up to and including “pull the plug decisions”. Anyone over the age of 18 should have these documents because absent the existence of these documents it becomes necessary to Petition the Probate Court for the authority to make financial, legal, or medical decisions on behalf of another person, this process can be time consuming and cumbersome especially when a loved one needs assistance immediately.

The “hereafter” documents, Wills and Trusts, are documents that serve to enforce your asset distribution wishes after your death. These documents create an organized distribution scheme for your assets that you can modify as your situation and assets change, and if funded properly, can avoid the cost and time delays of probate under state law. The similarities and differences between a Will and a Trust, as well as how they work together, will be discussed in greater detail in future blogs.

At this point, if your answer to any of the following questions is “yes”, you should consider estate planning: 

1. Do you have minor children? A Will and/or a Trust will allow you to name Guardians you are comfortable with to raise you children and ensure that any assets you can pass along to your children are used to their greatest advantage.
2. Do you have assets?  Whether the value of your assets is large or small, a properly drafted estate plan allows you to determine who will receive your assets and under what terms or conditions, rather than having your assets distributed pursuant to a state statute.
3. Do you want to determine who will be able to make legal and medical decisions on your behalf in the event you are incapacitated? Knowing who will make decisions on your behalf is very important because it allows you to guide those people with respect to the decisions you would want them to make. It also eliminates the stressful need to involve the Court when decisions need to be made promptly.

It should be clear that regardless of the size of one’s estate, proper planning is necessary for a number of reasons besides estate tax concerns. An attorney experienced in estate planning can answer your questions and help guide you in preparing a plan that fits your needs, being available to work with you to change your plan as your needs change, and being there to assist and guide your loved ones through those difficult times after your death.

Matt and Alan