ESTATE PLANNING ALERT TAX RELIEF TO END The Gift Tax Exemption of $5,120,000 per person is due to expire December 31, 2012. So act now to create a tax free estate plan for you and your family. Planning Opportunities Planning vehicles made attractive by current low interest rates and depressed asset values continue to be attractive, including Irrevocable Trusts, Grantor Retained Annuity Trusts (GRATs), Charitable Lead Trusts (CLTs), Qualified Personal Residence Trusts (QPRTs) and Sales to Intentionally Defective Grantor Trusts (SIDGTs). Business Succession Planning: the new law allows for easier and less costly transfer of businesses to future generations. Life insurance already purchased should not be cancelled as the law may change in the future requiring the beneficiary of a life insurance policy to pay estate taxes. The life insurance can now be used to provide wealth and protection for your spouse and future generations. To Repeat The estate, gift and GST tax provisions sunset on December 31, 2012, leaving their continuation to the next Congress and its successors. Rather than risk repeal and loss of this planning tool, best to take action now. 1
Revisiting Your Planning Estate planning is a complex process in which many factors, both tax and non-tax, may have great significance. The current tax law may impact how your heirs benefit under your current Will and may present opportunities to provide for your heirs. We would be pleased to review your existing estate plan in light of the new law to ensure that it reflects your wishes and takes advantage of the tax benefits now available. GENERAL ESTATE PLANNING INFORMATION EVERYONE NEEDS A WILL You spend your lifetime trying to accumulate wealth, protect your loved ones and provide for your family. When you pass away, your desire is to pass these assets to your loved ones in the way and manner you envision, which includes protecting your assets from taxes and creditors and giving your wealth to your family in a thoughtful manner. Without a Will, as explained in the memorandum as a service to our clients, this goal is unlikely to occur. We suggest you meet or call us today to discuss planning your estate. WHY YOU NEED A WILL If you don t have a Will, your estate will be distributed under the laws of intestacy. That means that you are allowing a statute to make your decisions, rather than making them for yourself. This can have dire and drastic consequences. For instance, assuming you have a spouse and two minor children, without a Will your spouse would receive fifty thousand dollars ($50,000.) and one-half of the estate, and your children would receive the other half with the children receiving these proceeds when they are no longer minors. In all likelihood, if you had a Will your spouse would receive your assets and then when you both pass away, the children would receive your assets. The goal would be first and foremost to protect your beloved spouse in his or her later years. The laws of intestacy do not do that. In addition, without a Will there will be no one designated to administer your estate to protect your assets and to distribute your assets properly. 2
Also, a Will may protect your children s money (should they inherit) by placing the money into trusts where you determine the trustee and ages of distribution. The Will also allows you to designate a guardian for your children should something happen to you. Without a Will, your children would receive your money (or one-half of it if your spouse survives), upon turning age eighteen, which is not what a parent would generally desire. Creating an estate plan with an attorney who specializes in this area allows you to minimize taxes and protect your assets with many new opportunities due to the new tax law, as discussed below. OVERVIEW OF OTHER REQUIREMENTS FOR A COMPLETE ESTATE PLAN Estate planning involves more than simply drafting a Will. It includes tax planning and can encompass lifetime gift arrangements, charitable gift arrangements, life insurance and other trusts as discussed above. At the same time, it includes general durable powers of attorney, living wills, health care proxies and even a designation as to who should control the preparation for your burial. These aspects of estate planning are discussed below. 1. Durable Power of Attorney Absent advance planning, if an individual were to become unable to manage his or her affairs because of mental or physical disabilities, his or her family would have to seek court permission to carry out legal transactions on behalf of the disabled person. With proper advance planning, you can avoid this time-consuming and expensive process. For example, by having a Durable Power of Attorney, appointing another person as your agent to carry out transactions in the event of disability, you may be able to avoid costly intervention. There is a new statutory form of the Durable Power of Attorney which we are advising all clients to use as part of their new estate plan. 2. Living Wills and Health Care Proxies An advanced Directive or Living Will is a document which authorizes termination of life support systems in cases in which a person is in a persistent vegetative state or is terminally ill and there is no reasonable prospect of recovery. Unless an individual signs such a written document setting forth his or her wishes, a facility may be legally obligated to maintain 3
artificial life support systems. Under these circumstances, when the quality of life is small or non-existent, many people prefer that medical aid be terminated and the person be allowed to die a peaceful death. A Living Will makes clear one s wishes in this respect. The decision to sign a Living Will is a very personal one, but it is something that should be considered in the estate planning process. A Living Will can be tailored to reflect each client s particular wishes. The authority to terminate medical treatment is usually placed in the hands of a family member through a companion document to the Living Will called a Health Care Proxy. A Health Care Proxy allows you to appoint another person to make all medical decisions for you, both routine and end of life, when you are unable to communicate with the doctor. A well-drafted Health Care Proxy should contain some HIPPAA Disclosure Language. 3. Living Trust A Living Trust is a trust created during one s lifetime and can generally be revoked at anytime prior to death unless provided otherwise. The primary benefit of a Living Trust is avoidance of the probate process. All assets in the trust at death pass automatically to the beneficiaries named in the trust. A further advantage of a Living Trust is the uninterrupted management of the assets upon incapacity of the grantor of the trust. The Trustee of the trust will continue to manage the affairs of the trust without the necessity of court intervention. A Living Trust acts as a more comprehensive Durable Power of Attorney. In many situations, a Living Trust is an excellent asset protection vehicle by allowing a Trustee to take the necessary measures to preserve assets. 4. Beneficiary Designations It is important to the estate planning process that all beneficiary designations under life insurance contracts, IRA qualified funds and the like be reviewed to be sure that the beneficiary designations work according to the individual s wishes. There should always be contingent beneficiaries named in case the primary beneficiary predeceases the individual. 5. Title to the Assets The manner in which spouses hold title to assets is important to the overall effectiveness of an estate plan. Jointly held assets pass automatically to the surviving joint tenant outright and do not pass under one s Will. This is often the case with a 4
couple s home, bank accounts, and sometimes with portfolio investments. Other assets have the same result, such as assets passing by beneficiary designations, including life insurance proceeds and retirement plan proceeds. While these assets are taken into account in the taxing process, they do not pass under, and are not governed by the individual s Will. It is important, therefore, to consider how title to assets is held. 6. Appointment of Agent to Control Disposition of Remains In many states, there is a statutory obligation of survivors or a designated agent to honor the written wishes of the deceased as to disposition of the body. New York, New Jersey and Connecticut have such laws. If you are estranged from next-ofkin or were never married to your significant other, the designated agent law allows you to name someone other than a legal spouse or relative to carry out your wishes. 7. Provisions for Protection of Pets For many people, a pet is an important and comforting part of life, and the care and well-being of the pet is a primary concern. Provisions are necessary in the pet owner s Will, to provide effectively for comfort and care for the pet. These include provision made for care of the pet upon the death of the pet owner, while the Will is in probate and upon the incapacity of the pet owner. Your Will can provide a trust to find the caretaking of your pet, as well as designate the caretaker for your pet. 8. Supplemental Needs Trust In the event that you have a child who is disabled, you may want to consider establishment of a Supplemental Needs Trust which allows the child to continue to receive public aid while still providing the child with services and items to supplement but not disqualify, the receipt of the public aid. 9. Conclusion This information is for educational purposes only. By reviewing this material, you will be more informed when dealing with an attorney chosen to create your estate plan. After you have reviewed this material, please call our office to set up a consultation. During this consultation, we will review your 5
existing documents and determine the appropriate estate plan for your individual needs. We look forward to hearing from you at your earliest convenience. Very truly yours, MILLMAN LAW FIRM Paul M. Millman Susan E. Herzog 6