Integrating Estate Planning into Your Overall Life Plan
Estate planning is an important piece of your overall life plan. Depending on your individual core values, you may have important goals for your life that dovetail with your estate plan. As part of the process of making the decisions you need to make to create a comprehensive plan, you will touch on four important areas.
- Level One - Dealing with Your Possessions. At this level, we are looking at asset management, including your money, property, investments and taxes. Along with your financial advisor, we will look at how your property is invested and what the potential impact of income and estate taxes will be. We will design a foundational estate plan that takes care of your property so that no unnecessary taxes are paid.
- Level Two - Protecting the People You Love. This is the relationship part of your plan. How will you use your assets to benefit, guide and protect your loved ones? At this level, we look at ways to structure your assets so that your family is protected. We balance the joint goals of providing a legacy to your children and grandchildren, but in a way that promotes good financial responsibility.
- Level Three - Find Your Purpose. Now that you have provided for your family and created a foundation, what do you truly want to do with your life? Travel, ministry, a second career are all valid options. Having a comprehensive estate and business plan in place allows you to pursue your purpose.
- Level Four - Leave a Legacy. What do you want to be remembered for after you are gone? What cause do you want to serve? We make sure your estate plan fits your charitable giving goals, whether large or small.
Incapacity Planning- A Crucial Element of Estate Planning
Even if you don’t have a lot of assets, at the very least, your estate plan should address what will happen to you and your assets if you ever become incapacitated. A durable power of attorney and a health care power of attorney are two fairly simple tools that can make sure you and your family avoid an expensive interdiction proceeding if you ever become unable to manage your own affairs.
I recently received an email from a family member who is struggling with this issue. Her father is very ill and no longer competent to make health care or financial decisions for himself. Her mother is having trouble getting health care providers to share information with her and is unable to handle financial affairs for her husband because he never executed a power of attorney granting her that authority. The family is now considering guardianship proceedings, which will cost thousands of dollars, in order to allow the mother to gain some control over her husband’s assets and health care decisions.
This expensive situation could have easily been avoided. Even if you have few assets, take the time to have these documents prepared. The value of having these things taken care far outweighs the legal fees involved.
The Importance of Meeting With An Attorney As Soon As Possible after a Loved One Dies
When someone dies, it is generally a stressful time for their loved ones. However, it is critically important that you consult an attorney to get the succession paperwork handled as soon as possible after death, particularly if a large estate is involved.
There are several tax deadlines that come into play. Federal estate taxes are due within 9 months of death, and Louisiana Inheritance taxes can be avoided completely if an inheritance return is filed within 9 months. But more importantly, particularly if there is a large estate involved, there is a certain amoutn of post-mortem planning that can be done to minimize estate taxes for the surviving spouse’s estate. However, all of this must typically be done within 9 months of the date of death.
I recently met with a client in whose case the delay will cost over $1 million in unnecessary taxes. His wife died in November of last year, and he didn’t come to see me until last week. Upon looking at his estate, I found that he inherited a large IRA from his wife. The total estate was about $4 million. No estate tax is owed on the wife’s death, due to the unlimited marital deduction. But because no estate planning had been done during the wife’s lifetime, there was no provision for preserving the $2 million exemption in the survivor’s estate. This leaves him with $1.5 Million subject to estate tax. Had he come to see me sooner, I could have recommended a disclaimer of part of the inheritance from the wife, which my client did not need because he has sufficient assets of his own. This simple strategy could have saved him and his heirs about $750,000 in estate taxes. In his case, the cost will be compounded because a portion of the IRA will have to be withdrawn to pay the estate taxes on his death, resulting in an additional tax liability of roughly $250,000.
This example serves to remind us of the benefits of comprehensive estate planning. Like many things, the best time to put a plan in place is before you need it. What I do for my clients is make sure things like this never happen by creating plans and making sure my clients, their executors and family members know exactly what to do when the unthinkable happens.
Louisiana Repeals State Gift Tax Effective July 1, 2008
The Louisiana Legislature has repealed the Louisiana gift tax effective July 1, 2008. This means that after for gifts made after July 1, 2008, not gift tax will be owed and no state gift tax returns need to be filed. For gifts made prior to July 1, 2008, a Louisiana gift tax return will be required to be filed by April 15th of the year following the year during which the gift is made.
This change simplifies estate planning for many individuals who use gifts as part of their estate planning strategy. Under current law, gifts to any individual in the amount of $12,000 or less in one year are exempt from Louisiana gift tax, and each donor is allowed a lifetime exemption of $30,000.
Be sure to consult your CPA or estate planning attorney before making any gifts that exceed $12,000 in one year to make sure you are complying with both federal and state gift tax laws. The most common mistake I see in my law practice on this issue is when family members transfer interests in real estate to each other via acts of donation. These donations, to the extent the value of interest give exceeds $12,000, are subject to gift tax and require filing of state and federal gift tax returns.
When is the last time you reviewed beneficiary designations on your life insurance policies and retirement accounts?
Life insurance and retirement plans are "non-probate" assets. When you die, these assets will go to the persons or entities you designate on your beneficiary designation form. You fill these forms out when you buy life insurance or enroll in an employer retirment plan, or open an IRA. And most people forget about them after that. In my practice, I often see beneficiary designations that leave property to an ex-spouse, simply because the owner did not think to make changes to their beneficiary designation. Usually, we catch this in time, but in some unfortunate cases, property went to person other than who the decedent would have chosen, simply becuase this detail was overlooked.
Because so many people have large portions of their wealth invested in IRAs, it is imperative that the beneficiaries on these accounts be properly designated. Failure to take care of this detail can result in loss of a large portion of the account to income tax that could have easily been avoided by naming the right beneficaries.
So, if it has been a while since you have looked at your beneficiary designations, or if you have gone through major changes in your life (such as the death of a loved one, divorce, birth of a child, or marriage) since the last time you reviewed them, it is time to pull out those files and take a look. If you have questions or need help figuring out what to do, talk to your estate planning attorney. Because of how important I know this is, I offer my estate planning clients get a free annual review of their estate plans, including their beneficiary designations, to make sure no changes are needed to fulfill their wishes.