A value-based estate plan Featured

8:00pm EDT March 26, 2009

Most people believe that they only need to think about estate planning if their estate is taxable. In fact, the most compelling reasons for planning have nothing to do with taxes. Despite all the nontax reasons for engaging in estate planning, most estate planning discussions begin with some understanding of the current status of federal estate tax laws.

The estate tax applicable exclusion permits the transfer of a certain amount of assets estate tax free. The current federal estate tax applicable exclusion is $3.5 million with a top tax rate of 45 percent. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the federal estate tax will be repealed for one year in 2010. In 2011, the law brings back the pre-EGTRRA law, with an exclusion amount of $1 million.

However, many think that President Obama’s administration will have a new law passed before the temporary repeal in 2010. The expectation is that the exclusion will remain in the $3.5 million to $5 million range with a 45 percent tax rate and a top tax rate of 55 percent.

If this occurs, it would likely result in a single person’s estate not being subject to the estate tax if valued at less than $3.5 million. Similarly, a married couple could transfer up to $7 million to beneficiaries, without paying estate tax. But, this does not mean you should not plan ahead even if your estate is valued under these amounts.

“Estate planning is not just about after-death issues,” says Ana M. Veliz, an attorney with Katz Barron Squitero Faust. “It involves planning during your lifetime, maintaining a standard of living in retirement and planning in case of mental incapacitation.”

Smart Business spoke to Veliz about estate planning and what you need to be aware of in order to have truly golden years.

What is involved in estate planning?

An estate plan provides for the management and disposition of your assets if you die or if you become mentally incapacitated. It can be will or trust based.

Estate planning should involve planning for personal goals. It should also include protection in case of a catastrophic illness and remarriage protection for your surviving spouse, as well as divorce protection for your children. You’ll also want to ensure your assets are properly protected and transferred to your intended heirs after you’re gone.

Estate planning should also involve passing on a basic set of values and principals. Discuss education, religious beliefs, values, charitable giving and incentives with your younger generations. Establish a family tradition of charitable giving. Also, discuss the proper transition of your family business to the next generation. Make sure you’re providing for your family’s financial security and providing for special needs beneficiaries.

How do I know if I need estate planning?

If you and your spouse have children that are minors, you need estate planning. You need to document who your children’s guardian would be if both you and your spouse die. You also need to determine how the children’s needs and education will be provided for. Also, you’ll usually want to specify at what age your children can receive assets and/or how those assets can be used.

You’ll want estate planning if you have children with special needs. It’s especially important that you make sure your special needs children continue to receive whatever government assistance they’re currently getting.

If you’re divorced and/or in a second marriage, you’ll need a good estate plan. In a second marriage, you’ll obviously want to take care of your spouse, but you may want to make sure that your children from prior relationships are taken care of, as well. In the case of a divorce, you’ll have to determine who will be your children’s guardian if the noncustodial parent can’t be.

Finally, make sure your beneficiary designations are up to date. Also, if you want to avoid probate and ensure that your personal information doesn’t become public record, you’ll need a revocable trust. If you have a trust-based plan, make sure your assets are properly titled in your trust’s name. With a few exceptions, a trust-based estate plan is the best way to avoid probate.

How can I avoid intra-family disputes?

First, clearly communicate your plans to your family members so there are no surprises. You may also want to give your family members the opportunity to participate in the planning process. Create a family mission statement where appropriate.

The more family members are involved in the discussions and the more issues are dealt with openly, the more likely the plan will result in peace and harmony as opposed to family disputes and grudges.

If I don't have an estate plan, what consequences could I face?

Without an estate plan, you won’t be able to control how your assets will be managed or distributed if you die or become incapacitated. Your estate and assets could be wrongly distributed. And, your family could face a large, unsuspected tax burden.

How often should an estate plan be reviewed?

You should review your estate plan every three to five years. Also, review it whenever you have a life-changing event, such as a marriage, a spouse’s death or the birth of a child or grandchild. And, do a review if the needs of your beneficiaries change.

ANA M. VELIZ is an attorney with Katz Barron Squitero Faust. Reach her at (305) 856-2444 x149 or amv@katzbarron.com.