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Estate Planning: Timing is Everything

In reading the Chicago Tribune, I noticed the following article and felt that it illustrated very well the importance of planning one's estate. Having time to thoughtfully consider all aspects of an individual or family's unique situation and making the most prudent decisions in developing an estate plan is critical to the individual and family's future financial well being. -Robert G. Whitley, Jr. By Jerry Berrios Chicago Tribune In October 1996, Clayton, Calif., residents Pat and Ben Spada trekked to Australia on their dream vacation. Ben was disoriented during the first day of sightseeing, so the next morning the couple went to a Sydney hospital, where Ben was diagnosed with brain cancer. The couple returned home in late November, and Ben died about 10 days later. Pat said her husband's health deteriorated so quickly that having a discussion about their legal documents was not a priority. The Spadas had a will, a power of attorney and a trust, Pat said, but it turns out it wasn't the right type of trust for her future tax situation. Even though the couple planned ahead, that trust is now causing Pat to look carefully at every detail of her own estate planning. Pat said her husband's health deteriorated so quickly that having a discussion about their legal documents was not a priority. "We did not use an estate lawyer," said Pat, a retired teacher. "We really should have had a different kind of trust." Most people tend to avoid thinking about estate planning. The process takes time, involves legal documents and forces you to face the biggest issue of all: death. Experts say misconceptions exist about estate planning because it involves so many documents. But estate planning, at its core, is about doing what you want. It means your wishes will be carried out. "It's the only thing in this country where you are in control," said William Massarweh, an estate-planning attorney in Walnut Creek, Calif. "You said it. Everyone else must abide by it." Estate planning has its benefits. A living trust holds titles to your assets, but you still manage them. With a trust, you avoid probate--the proving of the will--because your assets aren't in your name. A will--the document most people think of when it comes to their estate--appoints an executor and a guardian for children and details to whom you want your property to go. With a will, an individual's estate goes through probate, which can take months or years and a lot of money. "It's the only thing in this country where you are in control" With estate planning, people and finances are the two main issues. People issues include who will participate in your estate plan: Who will take care of your children, be a trustee or manage the appropriate power of attorney? And who will inherit property, personal possessions or the family business? Financial issues deal with estate taxes and probate costs, such as fees for lawyers and executors. Keith Schiller, an estate-planning attorney in Walnut Creek, said he puts the people issues before the financial ones. Those planning their estate have to be realistic and recognize the limitations of family members, Schiller said. "Look honestly at how the family is," he said. In addition, Schiller said, the plan has to have both incentives and penalties. "Within the documents themselves you should be able to have both carrots and sticks." Schiller said "carrots" can include receiving property or money or naming someone as a trustee or executor. The "sticks" might be no-contest clauses, which strongly discourage any beneficiary from challenging the estate plan in court. An estate plan is a set of documents that outline how you want your property handled, and it can also address how you are to be treated if you are incapacitated: Property power of attorney authorizes someone to manage your property. Health care power of attorney allows a person to make health care decisions for you if you become incapacitated. A living will authorizes the termination of life-support systems if there is a terminal illness. Massarweh said most clients walk into his office and say they want a will. "But the consumer needs to be aware that no one document accomplishes everything," he said. "You need the whole package to handle contingencies." Taxes are what most people want to avoid. Currently an individual can pass along $625,000 to heirs with no federal estate tax, which can range from 37 to 55 percent. In 2002, the amount will rise to $700,000 and in 2006 to $1 million. A married couple, with a living trust, can currently exempt $1.25 million. This amount increases to $2 million in 2006. What makes a person decide to create an estate plan? Several attorneys agree significant life events motivate people, such as the birth of a child, death of a loved one or travel. Once a person is ready, then the search for the estate planner begins. Estate plans can be created by financial, investment and insurance companies, as well as certified public accountants and attorneys. Many people recommend estate-planning attorneys. Books and software companies provide do-it-yourself estate plans. Taxes are what most people want to avoid.   Pat Spada is doing her homework first and then deciding what is right for her. She attends estate-planning seminars and is getting closer to completing her estate plan. She advises shopping around for estate planners and knowing what is being offered. "People who haven't done their trust need a wake up call," she said.   Living Trust--Gives donor full control of assets, flexibility and access to management throughout lifetime. Harder to challenge than a will. Provides little or no estate or income tax benefits, but allows an individual or a couple to maximize federal estate tax exemption. Irrevocable Trust--An irrevocable trust permanently transfers assets to heirs and avoids probate. It surrenders assets and the right to change trust terms. There may be possible gift taxes. Charitable Remainder Trust--By making a gift of appreciated assets to charity, lets the donor receive income from assets for up to 20 years as well as current income tax deduction over a five-year period. Defers or eliminates capital gains tax, but surrenders assets. Irrevocable Life Insurance Trust--Keeps proceeds from a life insurance policy out of donor's estate and provides beneficiaries with liquidity to pay estate taxes. Has generation-skipping tax advantages. May be possible gift and estate taxes. Credit Shelter Trust--Created under a living trust or by a will, it removes taxes from a surviving spouse's estate, provides for both surviving spouse and heirs through use of unified estate and gift tax credit. Trust can pass $1.3 million to heirs tax free. Qualified Terminal Interest Property Trust--Allows a donor to provide income after death to second spouse while preserving assets for children of first spouse.

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Robert G. Whitley, Jr., P.C. info@plfdlaw.com (815) 436-4700