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

Introduction to Plainly Legal 2.0

Estate planning is an area of law that is constantly evolving and adapting to a variety of influencing factors. While the impact of changes in the law are a significant driver of change in estate planning it is important not to underestimate the impact of judicial decisions and development of new technology on the field. Over the course of the last 20 years, we have seen a refinement of the law to address some of the issues that have arisen due to other societal changes during that time, but often it is the responsibility of estate planning professionals and their clients to attempt to resolve situations in the absence of clear statutory guidance. This ongoing evolution is one of the many reasons why we consider estate planning an ongoing process that requires a strong attorney-client relationship built over the course of many years. In the coming days and weeks we will be reviewing and revising many of our previous blog posts in order to update and improve the information contained on our blog and to begin addressing potential changes that could result from Congress's current push to reform the tax code.

We normally encourage our colleagues and clients to review their estate planning as the year comes to a close, this year is no different because, no matter what comes from the legislative efforts in Washington, changes in individual lives generally have a much greater impact on an estate plan than changes in the law. Regular review is essential to confirm that the terms of your estate plan still aligned with your goals for managing your affairs in the event of your incapacity or death. As often as a client contacts us to update a designee or beneficiary in their estate plan, we also hear from clients who need to make significant changes to their estate plan because the goals of their planning have changed over time. We hope that the information we provide to you through the end of the year will prove useful, answering your questions and concerns regarding estate planning and to assisting you in a review of the current state of her planning (or lack thereof).

As you read through our posts, if you find yourself stuck with questions that we have not answered or topics that you would like us to address, please do not hesitate to contact us directly and we will do our best to assist you.

Matt and Alan