When we ask our clients why they want to implement estate plans, they usually give one of three reasons: they want to ensure that their assets will be distributed according to their wishes; they want to avoid probate; and they wish to reduce estate tax liability. These are all very good and valid reasons but, depending on your circumstances, you may have better reasons for undertaking this task.
If you are the parent of a minor child or children, the establishment of a last will and testament is the only way to nominate a guardian if you die before your child reaches the age of 18. While the Surrogate’s Court is always going to have the last word as to the appointment of a guardian for minor children, your nomination will carry great weight. Moreover, if you die without a will, your child will inherit at the age of 18, and what parent today believes that 18 is an appropriate age for a child to manage their inheritance?
Estate planning is critical when a child or family member has special needs. Proper planning can ensure that the assets which they will inherit are protected for them and will not interfere with governmental benefits to which they are or may become entitled.
If your estate will be taxable, payment of the estate tax liability must be made within nine (9) months from your date of death. Depending on how your estate is invested, the liquidation of assets to meet the tax deadline may result in loss in value and/or liability for capital gains tax that may be avoidable with proper planning.
Estate planning should also incorporate “lifetime planning:” planning that will protect you during your life and ensure that decisions concerning your health, medical, business and financial matters are timely addressed, by the person or persons whom you select for that responsibility, if you become incapacitated, either temporarily or permanently.
Seniors are frequently reluctant to do estate planning. Whether they are superstitious, are convinced that they are at no immediate risk or are just uncomfortable with the prospect of discussing these issues, they often defer planning until it has become too late. An accident or incapacitating illness may rob them of the ability to plan. The costs of long term care can be devastating. When meeting with clients, we present alternative planning strategies that will help to qualify a client for Medicaid in the event that they later require long term care at home or in a nursing home. Our planning helps seniors maintain control and maximize the resources that may be available for their care.
And what about those who have already done their planning? Do not believe that this is a once-in-a- lifetime event. When we meet with our clients to sign their estate planning documents we make a point of advising them that their plans should be reviewed whenever there is a significant change in their life or circumstances: marriage, divorce, illness, birth, death. Changes in the law can also affect estate planning. For this reason, we offer our clients a complimentary review every 3 to 5 years and send reminder letters to encourage this review. Many clients take advantage of this invitation to review the viability of an existing estate plan or to ascertain what, if anything, should be done when new circumstances arise. Unfortunately, some clients do not. This may result in lost opportunities. Beneficial planning techniques which could have been incorporated to take advantage of a change in circumstances are lost. Laws may have changed, rendering obsolete strategies that were important when the documents were first prepared.
For instance, the value of your estate plays a critical role in the way an estate plan is crafted. It is customary for attorneys to take into account the value and anticipated growth of their clients’ assets when evaluating whether to incorporate tax planning. In 2011, the maximum amount that could be protected from federal estate tax, per person, was $5,000,000. In 2018, the threshold for federal estate tax increased to $11,000,000. Estates that previously required tax planning no longer require that protection and, in many circumstances, the tax saving structure is counter-productive. However, this is not something that most clients would identify without an attorney’s review. If we do not see a client again until the first of the couple has passed away, we cannot effectuate a change after the fact.
Clients and their loved ones do not always remember the instructions that we give them during our meetings. They often make mistakes that could have been avoided. Some forget that certain Medicaid planning can be augmented before the death of a well spouse. Waiting to reach out to us can cost a family many thousands of dollars in costs for care that could have been paid by Medicaid.
Estate plans should be fluid. They should address our current needs and reflect our current intentions, but as our lives change and our families age, the plans require tweaking. Like a mobile, the smallest change can significantly alter the plan’s effectiveness.