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Tax and Estate Planning

Practicing Attorneys

While no one likes to think about death or disability, establishing an estate plan is one of the most important steps one can take to protect oneself and your loved ones.  Estate Planning is a loving act.  Proper estate planning not only puts you in charge of your financial affairs, it also spares your loved ones from the added expense, delay and frustration associated with managing your affairs when you pass away or become mentally incapacitated.
 
Providing for Incapacity

If one becomes mentally incapacitated, you will not be able to manage your own financial affairs.  Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated.  The truth is that in order for others to be able to manage your property, they must petition a probate court to declare one legally incompetent.  This process can be lengthy, costly and stressful.  Even if the court appoints the person you would have chosen, he or she will have to be continuously involved with the probate court every year.  It is the job of the probate court to supervise the person who is in control of your financial affairs.  If one wishes to avoid probate and have one’s family able to immediately take over one’s financial affairs without probate court involvement, one must designate a person or persons that you trust in proper legal documents (known as a “Living Trust”).  In this way, one’s successor Trustee will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home.  A will does nothing for you until one dies.  A power of attorney, which is revoked at death, may be insufficient.  A power of attorney creates an agency which is not binding on a third party.  A Trustee, on the other hand, owns the property and can compel a third party to deal with them.  This is superior to a power of attorney which is nothing more than a naked delegation to an agent that may, or may not, work.  
 
In addition to planning for the financial aspect of one’s affairs during incapacity, one should also establish a plan for one’s medical care.  The law allows you to appoint someone you trust - for example, a family member or close friend, to make medical decisions on one’s behalf regarding your medical treatment options if you lose the ability to make decisions for yourself.  One can do this by utilizing a durable power of attorney for health care.  This is a legal document by which one can designate a person to make such medical decisions for himself or herself.  In addition to a power of attorney for heath care, one should also have a living will which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.

Avoiding Probate

If one utilizes a will to leave his or her estate to one’s beneficiaries, everything owned in one’s individual name will pass through probate.  All wills go through probate.  The process is expensive, time-consuming and open to the public.  The probate court is in control of the process until the estate has been settled and distributed.  If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled.  The process of probate can take months, (even years) while trying to determine the proper disposition of the estate.  A surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses.  Ask anyone who has ever been through this process, and they will tell you “never again”!  With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.
 
Providing for Minor Children

It is important that your estate plan address issues regarding the upbringing of your children.  If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations.  You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters.  You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time.  A contingency plan should provide for persons you would like to manage your assets.  One of the most difficult decisions a parent needs to make is to whom do you wish to give the care, custody and control of one’s minor children?  This person is called the “Guardian.”  If a child is over the age of eighteen, he or she is an adult for this purpose.  Children under the age of eighteen must have a Guardian.  The person in charge of the finances (the “Trustee”) does not have to be the same person as the guardian.  In fact, in many situations, you may wish to purposely designate different persons to maintain a system of checks and balances.  If a parent fails to designate a Guardian, the decision as to who will manage your finances and raise your children will be left to the probate court.  Even if you are lucky enough to have the person or persons whom you wish to be selected by the probate court, they may have undue burdens and financial restrictions placed on them by the probate court.
 
Other issues that need to be considered are how does one wish to transfer his or her wealth to your beneficiaries?  Assets can be transferred outright; or one can utilize a trust to provide creditor protection.  Think of the trust as a set of instructions that a Trustee can follow to help mold and shape the character of beneficiaries by reinforcing your values and expectations.  A Trustee can provide incentives to foster education, service or lifestyles that comport with the values of a Trustmaker.  All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.  Trusts can provide protection from predators (those are people your beneficiaries call “friends”), creditors and spouses.
 
You should give careful thought to your choice of Guardian, ensuring that he or she shares the values you wish to instill in your children. You will also want to give consideration to the age and financial condition of a potential Guardian.  Make sure that your plan does not create an additional financial burden for the Guardian.
 
Planning for Death Taxes

The IRS will want to review your estate at death to ensure you do not owe them that one final tax: the federal estate tax.  Whether there will be any tax to pay depends on the size of your estate and how your estate plan works.  Many states have their own separate estate and inheritance taxes. There are many effective strategies that can be implemented to reduce or eliminate death taxes, but, you must start the planning process early in order to implement many of these plans.
 
Charitable Bequests – Planned Giving

Do you want to benefit a charitable organization or cause?  Your estate plan can provide for such organization in a variety of ways, either during your lifetime or at your death.  Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
 
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding a guardianship during your lifetime, probate at death, estate taxes and unnecessary delays.  You should consult a qualified estate planning attorney to review your family and financial situation and your goals, who can explain the various options available to you.   Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.

Frequently Asked Questions

Estate Planning
Living Trusts
Estate Taxes
Planning for Incapacity
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