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Beyond the Usual Reasons for Planning Your Estate

Beyond the Usual Reasons for Planning Your Estate

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Monday, 06 February 2017 05:46 PM Current | Bio | Archive

The familiar reasons for planning your estate are compelling. Paramount among these is making sure your property goes to the person(s) you want it to go to at your death. This is done by a will, and, if the will bequeaths your property to a trust, a trust.

An estate plan should also confirm beneficiary designations on your life insurance policies and retirement plan interests.

Avoiding probate court proceedings is another important reason for planning your estate. Probate proceedings are public, inconvenient, and expensive.

During your lifetime, if you become mentally incompetent, probate proceedings may be necessary to have a conservator appointed to manage your property, or a guardian appointed to care for your person. You can avoid such proceedings by executing a general durable power of attorney (“GDPA”) and a health care durable power of attorney (“HCDPA”), but you can do so only while you are mentally competent.

In a GDPA, you appoint an agent, also called an attorney-in-fact, empowered to make transactions in your property which you could have made if you were mentally competent.

In a HCDPA, you appoint a patient advocate to make decisions concerning your medical care and treatment in the event you become mentally incompetent and are no longer able to make such decisions for yourself.

If you die with property titled in your name, a decedent’s estate in probate court will be necessary to transfer your property to the persons entitled to it under the law. The way to avoid a probate court decedent’s estate at your death is to establish a revocable trust and transfer your probatable property to it during your lifetime.

Probatable property is property which, if owned by you at your death, requires a decedent’s probate estate proceeding to adjudicate title to the property to the person(s) entitled to it under the law. Most property is probatable. Exceptions include qualified retirement plan interests, individual retirement accounts, life insurance proceeds, between spouses, or as joint tenancy with right of survivorship, property held tenancy by the entirety, and property held in your revocable trust at your death, all of which pass outside of probate.

Minimizing taxes by reason of your death, and deferring them for as long as possible, is a classic reason for planning your estate. Since 2010, tax avoidance has been less important for most people in planning their estate in view of the higher per-decedent gross estate exclusion amount ($5,450,000 for decedents who died in 2016). To make maximum use of the gross estate exclusion amount, each spouse needs a well-drawn revocable trust. To avoid probate, the spouses should transfer their property to their revocable trusts during their lifetime.

Beyond the usual reasons for planning your estate, it is highly beneficial to have a lawyer review your personal finances. Two cases will illustrate.

In the first case, Brother and Sister each inherited several million dollars from their parents. Brother never married, but he did have a long-term girlfriend. Before Brother met his girlfriend, inherited the bulk of his estate, and transferred it to a bank account titled to Brother and Sister as joint tenants with rights of survivorship. Brother was lawyer-averse, but on his deathbed did finally sign a will bequeathing his estate to his girlfriend. The problem is that Brother left practically no estate for his will to operate on, his bank account passing to Sister outside of the will by reason of the joint tenancy with survivorship provision.

In the second case, Thomas made a simple will bequeathing his auto parts business to his two adult sons, and the residue of his estate to his wife whom he married a year before his death. The auto parts business had been operated for many years in a building which Thomas owned. Thomas owned the business himself—not in a corporation or a limited liability company. When Thomas died, it was unclear whether the building passed to the sons by the bequest of the auto parts business to them, or to Thomas’ widow by the residuary clause of his will.

Both of the above situations could have been avoided by having a lawyer review the decedent’s financial affairs during his lifetime. The reviewing lawyer should, of course, be an estate planner, and not the drafter of the will being reviewed. Resolving the situations after the decedent’s death may require costly litigation.

In the second case above, Thomas should have formed a corporation or a limited liability company (“LLC”) for his auto parts business, and transferred the business to the entity, to protect himself from personal liability for claims arising out of the business. He could also have conveyed the building to the entity, if that was his intention. To protect the building from claims arising out of the business, he could have held the building in a separate corporation or LLC. Then he could have bequeathed shares of stock in the corporation(s) or membership interests in the LLC(s) to his two sons.

Stephen J. Dunn is a leading authority on compliance with U.S. laws concerning foreign financial assets. He has handled hundreds of foreign accounts cases for taxpayers located throughout the United States and beyond.

 

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StephenJDunn
The familiar reasons for planning your estate are compelling.Paramount among these is making sure your property goes to the person(s) you want it to go to at your death.This is done by a will, and, if the will bequeaths your property to a trust, a trust.
Planning, Estate, Will, Attorney
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2017-46-06
Monday, 06 February 2017 05:46 PM
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