Statistics show that less than 25% of people who would significantly benefit from the tax or legal aspects of Wills or Trusts have them in place.  Many of those with estate planning documents haven’t reviewed or updated what they have for years.  If you have thought about getting this planning completed (or updated) but not taken steps to do so, you are not alone.  The topic is not easy to think or talk about.  However, completing this planning and the necessary documentation provides a level of comfort: knowing your wishes and plans to provide for and take care of your family and those persons and causes important to you have been put in place.  This article provides an overview of several estate planning topics and considerations.

Why You Might Need a Will or Trust.  

Planning for the disposition of your property usually includes the preparation of a Will or a Revocable Trust, which document your wishes as to the handling and disposition of your property after death.  Both documents generally accomplish the same result as to disposition of your property, but there are some different benefits to each that direct whether a Revocable Trust or a Will is better for your circumstances and wishes.  

If you do not put a Will or Revocable Trust into place, applicable state law dictates how your property is distributed, who receives your property, and who is appointed guardian of your children and the personal representative (alternatively called executor) of your estate.  The results dictated by state law likely won’t represent what you would have desired and often create unintended results.  Proper planning leads to a more orderly process of administration of your estate that follows your wishes and provides for your family, including a spouse, significant other or partner, children, and grandchildren. 

Ensuring that your wishes are known and family and loved ones are taken care of are some of the most common reasons a person decides to prepare a Will or Revocable Trust.  However, because individual interests and wishes differ, there are other considerations that necessitate individual and family planning, some of which are addressed in this article.

Planning for Children and Spouses and by Unmarried Couples.

Proper planning ensures that your children are taken care of after your death.  Your plans can set up trusts for your minor or adult children with a trustee that you designate, either in a Will or Revocable Trust.  Doing so allows you to control the conditions upon which your children receive the assets you leave them and avoids leaving money to your children (regardless of age) if they are not ready or capable of managing those assets on their own.  Leaving money to a minor creates additional issues, including the need for a court to appoint a financial guardian with cumbersome (and often expensive) court reporting requirements, and could mean that the child receives his or her entire inheritance at age 18.  In addition to putting controls on the assets you leave your children, planning allows you to document your desires (which are almost always determinative) as to 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 minor children, and would then control decisions for your children and the assets you leave them.

Married couples often have the misconception that the surviving spouse will receive the assets of the first spouse to die.  However, if you do not have a Will or Trust, your surviving spouse will likely receive less than 100% of the assets you individually own.  For example, 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 individually owned assets of the first of them to die, making planning a necessity.  Planning for spouses or significant others can avoid these unintended results.

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

Planning in a Second Marriage.

Many people are in second or subsequent marriages with some combination of ‘his’, ‘her’ and ‘our’ children.  These marriages, especially where children are involved, make planning even more critical.  In addition to the matters already addressed in this article, these couples must consider balancing the often competing interests of taking care of the surviving spouse while ensuring that each spouse’s children are provided for either at the time of that spouse’s death or after the death of the surviving spouse.  Without planning, all assets of one spouse could pass to the surviving spouse who could then, whether intentionally or even unintentionally, leave those assets to only the survivor’s children and/or a new spouse with nothing going to the children/family of the first spouse to die.  Planning in these situations often involves some combination of a Trust (whether in a Will or Revocable Trust), life insurance, and other planning tools that ensure both the surviving spouse and children of each spouse are provided for in the manner that you choose.    

Tax Planning Considerations.

Tax planning is rarely a primary consideration or even a concern for individuals when they engage in estate planning, especially for those individuals who live in states like Indiana that do not have an inheritance tax.  This is because five years ago, Congress increased the lifetime gift and estate tax exclusion to such a level that most estates are no longer subject to federal gift and estate tax.  Additionally, there is an unlimited marital deduction that allows an individual to leave an unlimited amount to the surviving spouse free of estate and gift tax.  

Federal law currently provides an exclusion of $5.49 Million (going up to $5.6 Million in 2018) of an individual’s gross estate making that amount exempt from federal gift and estate tax.  Many people are surprised to learn that the calculation of their gross estate generally includes the value of beneficiary-designated assets such as life insurance policies and retirement accounts.  This surprise is particularly startling with respect to life insurance proceeds, which are generally understood to be ‘non-taxable’ (which is likely true with respect to income taxes).  For individuals with assets over this exclusion amount, estate planning is a must.  Even those with assets approaching that level, or who expect to reach that level in the future (as a result of events such as a large inheritance, for example) should make it a consideration.  Aside from the total value of an individual’s assets, there are certain types of assets you may own and other matters that could make taxes an important consideration in preparing your estate plans. 
Estate Planning for Business Owners.

In addition to the above considerations, business owners should be planning for business succession when they make their estate plans.  Business succession planning addresses matters of whether family member(s) 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 of several child/children/family member(s) will be involved and how the ownership of the company will be structured in the future.  Generally, the owner knows what is best for the future of the company.  A failure to put in place a succession plan can result in significant adverse results on the business and family after the owner’s death, including subsequent disputes, unfairness (among children, for example), loss of value to the business, unintended tax consequences, or even the failure of the business.  A significant percent of businesses do not make it to or through a second (or later) generation, and a failure to plan will almost certainly increase that likelihood.

Advanced Directives.

In addition to planning for after your death, estate planning should address the handling of your health care and financial assets during your lifetime through documents known as advanced directives.  These documents include a power of attorney to address financial and certain health care matters, and an appointment of health care representative to address health care decisions, each of which appoint another person(s) 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.  

We also recommend that you talk with your adult children about these documents and encourage them to have at least a power of attorney and appointment of health care representative prepared.  Even if adult children think they have no other reason to consider estate planning, these documents are important because without them, 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 you and your family.

Conclusion

This article broadly addresses common considerations and topics that arise in the context of estate planning.  However, the process of completing estate planning is specific to each individual and family.  It initially involves compiling a list of your assets and liabilities and then deciding your intentions and wishes with respect to both your health and assets during your lifetime and after death.  

© 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 Nov. 13, 2017 by Ryan L. Leitch