Most people think that estate planning is about reducing estate taxes. This may be a mistake because the great majority of Americans are never subject to estate taxes. The current estate exemption is $5,120,000. That means that a married couple has the ability to shelter $10,240,000 from any estate tax. The estate exemption is currently scheduled to drop down to just $1,000,000 per person on January 1, 2013. Even then, few estates are unlikely to be subject to estate tax.
Will Congress adjust that before January? No one knows. Many guess that a compromise at $3,500,000 will be enacted, but no one knows for sure. That was the exemption amount in 2009, and in that year, only one out of every 400 estates owed any estate tax. So let's focus instead on what estate planning steps we can say with a high degree of conviction that just about everyone should take.
Establish a Team
Glenchrist Financial LLC and the Glenchrist Law Firm can assist you in building or completing your team of advisors. Not only can we serve as your estate planning attorney and tax advisor, but we can also help you retain an insurance advisor, trust officer and planned-giving advisor. If you have accounts at banks or investment firms, the professionals responsible for those accounts will need to be consulted as well.
We can then help you inventory your assets and liabilities. What is important here is not just what is owned, but who or what owns them. Simply saying that "we" own an asset is, quite frankly, not enough. Is the asset owned outright? It is held by a trust? If owned jointly, is it joint owners with right of survivorship or tenants in common? Your bank and investment statements may not even indicate which type of joint accounts you have, but the answers must be found. Further, is the asset marital property, separate property or community property? Do you jointly own any assets with someone other than your spouse, like a parent or a child?
The practical definition of each of these types of property or forms of ownership may differ from state to state. We at Glenchrist can help you understand the laws of your state.
Other than a home and automobiles, many families have few assets outside of their retirement plans. These plans, including annuities, are unusual in that they have "beneficiary designations." These beneficiaries, selected by you, may trump the most detailed and well-thought out planning in wills and trusts. We at Glenchrist can help you coordinate the most beneficial designations to meet your objectives.
As a CFP® professional, our Founding Principal can then help you establish goals. To whom would you want your estate to go to should you die today? What about if you died five years from now? Your beneficiaries may be relatives, friends, charities or others. If some or all of your primary beneficiaries were to die with or before you, whom would you want as your contingent beneficiaries? Another important issue is one of governance. Do you intend the beneficiaries to have total control over their inheritance, or do you want to establish rules to protect them from themselves, their spouses or creditors? Do you intend a specific lump sum of cash to be paid to your beneficiaries at the time of your death, perhaps to pay for any taxes that may be due, or to equalize the shares to your beneficiaries? If so, life insurance may be a solution.
Protect Loved Ones
Another consideration is minor children, elderly parents, disabled family members and even pets. Whom would you wish to take care of them if you were gone? And how will that care be paid for?
Write a Plan
Everyone should have a written estate plan. For most, that means a will drafted by an estate attorney, such our Founding Principal. Some families may also benefit from utilizing a trust. Trusts may be useful to reduce probate costs, maintain privacy and/or to specify the rules for distribution under a variety of possible contingencies. For example, if you have young children, you may wish to have income only paid to their guardian up until they reach a certain age, after which the children would be allowed to take principal distributions. Would this distribution of principal be made all at once or incrementally over a number of years?
Who will make sure that your wishes are carried out after you are gone? In your written plan will you will want to assign specific responsibility to safeguard the estate assets and distribute them according to your wishes. In a will the person in charge is referred to as an "executor" or "executrix." In a trust the person is referred to as the “trustee.” These are very important roles and should not be assigned lightly. The executor has personal responsibility for following your wishes as well as the law, and is legally liable to do so. This is a high burden indeed. In Arizona, private fiduciaries must be licensed by the Arizona Supreme Court. Our Founding Principal is a licensed Arizona fiduciary in good standing.
Don't Wait. Start Now.
Too many people put off creating their estate plan, thinking that there is plenty of time to get to it later. Some don't like to think about death, and others simply cannot decide on exactly whom the right person would be to take responsibility for their assets or to serve as guardians for the children. Remember there is no "perfect" estate plan, but one thing is for sure: having no plan is absolutely certain to be very far from optimal.
Start now and contact us to get started. As your life and financial circumstances change, you can revise the plan to reflect your new realities. But should the unthinkable happen tomorrow, you need a plan in place to deal with your situation as it stands today.
(Adapted from materials provided by the CFP Board of Standards.)