Regardless of whether you are single or married, have children or not, are working or retired, or have significant assets or none, there are many reasons why you will benefit from creating or updating your estate plans.  If you have thought about establishing (or updating) a Will or Revocable Trust or other documents but have not taken steps to do so, you are not alone.  Statistics show that less than 25% of people who would benefit from the legal or tax aspects of a Will or Trust have them in place.  Also, for those with estate planning documents in place, most haven’t reviewed or updated their plans for years.  Planning for your death or incapacity, or that of your spouse, is not easy to think or talk about.  However, once the documents are in place and up-to-date, you will have a level of comfort knowing that your current wishes and plans to provide and care for your family and those persons and causes important to you are in place.  This article provides an overview of several estate planning topics and considerations.

Why Do You Need a Will or Trust?  

Wills or Revocable Trusts are documents used to state your wishes as to the handling and disposition of your property after your death.  Both documents are generally able to accomplish the same result as to the disposition of your property, but different benefits direct which is better for each person’s circumstances and wishes.  

If you do not put a Will or Revocable Trust into place, applicable state law dictates who is appointed as personal representative to administer your estate and distribute your property, how and to whom your property is distributed, and if you have children, who will be appointed as their legal guardian.  The results dictated by state law seldom represent a client’s desires, and often create unintended emotional and financial consequences.  Proper planning through the use of Wills and/or Revocable Trusts leads to a more orderly process of administration of your estate. 

Below are five considerations that necessitate individual and family estate planning.

1. Planning for Children and Spouses and by Unmarried Couples.

Proper planning ensures that your children are taken care of after your death.  Your Will or Revocable Trust can establish trusts for your minor or adult children with a trustee of your choice.  A trust allows you to control the conditions upon which your children receive the property you leave them and avoids leaving money or other assets to your children (regardless of age) if they are not ready or capable of managing such assets on their own.  A trust can also be used to avoid issues created by leaving money to a minor (including the need for a court to appoint a financial guardian with cumbersome and often expensive court reporting requirements) and to provide for a child until he or she receives his or her inheritance at an age selected by you (at least 18 and often older).  Proper planning also allows you to document the person(s) who will be appointed to raise your minor children.  Without such a designation, one or more family members may file and pursue (and fight over) being appointed guardian over you’re your minor children.

Married couples often have the misconception that the surviving spouse will automatically receive the assets of the first spouse to die.  If you do not have a Will or Revocable Trust, however, your surviving spouse is unlikely to receive all of your individually-owned assets.  For example, in Indiana, if you die without children but at least one of your parents survives you, your spouse will only receive a portion (likely 75%) of your individually-owned assets, with the remainder going to your parents.  Or, if you die with children, there will be a split of individually-owned assets between your surviving spouse and your children (regardless of age).  Unmarried couples will generally not receive any of the assets of the first of them to die which are individually owned and even some that are jointly owned, making planning a necessity for those couples.  Planning for spouses, partners, or significant others can avoid these unintended results.

Generally, a Will or Revocable Trust will not affect the transfer at death of assets jointly owned with a survivorship interest in another or those left by a beneficiary designation (such as a life insurance policy or IRA or other retirement accounts).  However, the planning process is an excellent time to review your designations to ensure they are up to date and meet your wishes.  

2. Planning in a Second Marriage.

Most second or subsequent marriages have some combination of “his”, “her” and “our” children.  For couples in these marriages, especially those where children are involved, estate planning is even more critical.  These couples must consider and find a balance that addresses the often competing interests of taking care of a surviving spouse while ensuring that any children of the first-to-die spouse have been provided for adequately.  Without proper planning, all assets of one spouse could pass to the surviving spouse who could, intentionally or even unintentionally, leave those assets to only the survivor’s children and/or a new spouse upon their death, with nothing going to the children or family of the first spouse to die.  Planning in these situations often involves some combination of a trust, life insurance, and other planning tools that ensure the surviving spouse, all children involved, and other family members of each spouse are provided for in the manner that the couple chooses.    

3. Tax Considerations.

Tax planning is no longer a primary consideration or even a concern for most individuals who engage in estate planning, especially for residents of states like Indiana that do not have an inheritance tax.  This is because the recent Tax Cuts and Jobs Act of 2017 has nearly doubled what was already a significant lifetime gift and estate tax exclusion to $11.40 Million per person for 2019, so the vast majority of estates are not subject to federal gift and estate tax.  This lifetime gift and estate tax exclusion, which will adjust for inflation until it sunsets in 2025 (unless extended by Congress) is in addition to the unlimited marital deduction, which allows you to leave an unlimited amount of property to your surviving spouse tax free, and the annual gift tax exclusion, which in 2019 enables you to give up to $15,000 per recipient of your choice.  

For those individuals with assets whose value approach or exceed this increased exclusion amount, estate planning is necessary and needs to take into account tax considerations.  For tax determination purposes, the calculation of one’s gross estate generally includes the value of beneficiary-designated assets such as life insurance policies and retirement accounts.  Many clients are surprised by this, especially concerning life insurance proceeds, an asset generally understood to be ”non-taxable”, which is likely true with respect to income taxes but not for establishing the amount of your gross estate subject to gift and estate tax.  Aside from the total value of an individual’s assets, there are other issues, such as specific types of assets, which may require tax-specific planning or consideration an essential part of your estate plan.  

4. Planning for Business Owners.

Business owners should also be planning for business succession when they make their estate plans.  Business succession planning addresses whether family members or others, such as business partners or employees, will own or run the business after the owner’s death.  These succession planning considerations bring their own dynamics and challenges, which are particularly difficult when deciding which family members to involve in the future ownership and operation of a company.  Generally, the current owners know what is best for the future of the company.  Lack of a succession plan can result in significant adverse consequences for both the business and family after the owner’s death, including disputes, unfairness (among children, for example), loss of business value, unintended tax consequences, or even failure of the business.  A significant number of businesses do not make it to or through a second (or later) generation, and failure of the current ownership to plan will almost certainly increase that likelihood.

5. Advanced Directives.

Estate planning can also address the handling of your health care and financial assets during your lifetime through documents known as advanced directives.  Advanced directives include documents such as a power of attorney to address financial and certain health care matters, and an appointment of health care representative to address health care decisions.  These work by appointing another person of your choice to make those decisions for you when you are not competent to do so (either temporarily or permanently), or at any time if you so choose.  Another type of advanced directive is a living will, which expresses your wishes as to the use or continued use of life-prolonging measures.  There are also various other directives that express your wishes, including preferences as to cremation versus burial or as to the standby guardian for your children.  

When clients choose to have advance directives prepared, we also recommend that they talk with any adult children about these documents and encourage their children to also have them prepared, especially a power of attorney and appointment of health care representative.  Without these documents it may be difficult, cumbersome, expensive, or even impossible for a parent to make decisions on behalf of an adult child in the event of his or her untimely injury or illness, making an already difficult situation much worse for the family.  

Conclusion

The estate planning process is specific to each individual and family.  It initially involves compiling a list of your assets and liabilities and discussing your intentions and wishes with respect to both your health and assets during your lifetime and after death.  This article provides only a brief overview of common considerations and topics that arise when preparing your estate plans.

© Riley Bennett Egloff LLP

Disclaimer: Article is made available for educational purposes only and is not intended as legal advice. If you have questions about any matters in this article, please contact the author directly.

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Posted on Sep. 30 2019, by Ryan L. Leitch