Date: Jun 10 2019
The below is based on article that originally appeared in Tax Management Estates, Gifts and Trusts JournalTM
Modern families take many forms, and estate planning professionals must advise them all. Given the wide range of configurations of the modern family, there may be more considerations than one may realize.
Under the 2017 Tax Act, federal gift, estate and generation-skipping transfer tax exemptions almost doubled in 2018. With the exemptions at $11.4 million in 2019 and indexed for inflation, along with split gifts, portability, and other trust planning strategies that may be in place from prior generations, even wealthy families may believe that the need for careful estate planning has been diminished.
Regardless of the changes in the transfer tax laws, however, much estate planning will not be impacted. There remain many reasons why estate planning is still necessary, including, but not limited to, the following:
- Loss of Capacity. Without a plan, if a client becomes incapacitated and unable to manage his or her affairs, a court will select the person to manage the client’s finances and medical decisions. With a plan, the party who fills that role has already been identified and authorized so that court involvement can be avoided.
- End of Life Decisions. Without a plan, there may be no documentation regarding a client’s wishes regarding life-sustaining treatment and comfort care. With a plan, clients have an opportunity to express their wishes and inform family members of their preferences. In some cases, mandating that health care providers do not resuscitate or refuse to administer life-prolonging treatment may be desired by the client to avoid family members from having to make decisions or implement the client’s wishes in that regard.
- Minor Children. Without a plan, a court must determine who will raise minor children if neither parent is alive. With a plan, the surviving parent can nominate (and in some states can determine without court intervention) the guardian(s) of his or her choice to take care of and handle the finances for minor children.
- Avoiding Intestacy. Without a plan, assets pass to heirs according to state laws of intestacy. Intestacy rules vary by state and are the default for those who die without a plan. Family members (and perhaps not the ones the client would choose) receive a deceased client’s assets outright, without benefit of trust protection. With a plan, the client – not the state – makes decisions concerning who inherits which assets, along with how and when the designated recipients receive those assets.
- Avoiding Probate. Without a plan, assets in the decedent’s name owned outright go through probate (subject to some small estate transfer exceptions in some states usually for amounts not exceeding $100,000). Probate can be an expensive, public and time-consuming process. It typically gives creditors an easy forum for filing claims. Waiting for a personal representative to be appointed through probate can delay the timely administration of assets. Although many states boast that probate is not cumbersome in their state, it is still desirable for planners to help clients avoid being forced to go through probate.
- Blended Families. Without a plan, children from multiple relationships may not be treated as intended and the interests of surviving spouses may be in direct conflict with those children. With a plan, the creator of the estate plan determines what goes to the current spouse, if any, and what goes to any children from current and prior relationships.
- Special Needs Planning. Without a plan, recipients with special needs risk being disqualified from receiving Medicaid or SSI benefits and may have to use an inheritance to pay for care. With a plan, a trust can be created that should enable recipients to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.
- Keeping Assets in the Family. Without a plan, upon an adult child’s death, that adult child’s surviving spouse could receive the child’s inherited assets if the child predeceases that spouse. If the child divorces the current spouse, a significant portion of the inherited assets could go to the spouse. With a plan, a trust can be created to help ensure that assets will stay in the family and, for example, pass to grandchildren or more remote descendants instead.
- Digital Information and Assets. Without a plan, the family may not be able to access the decedent’s online photo albums, music files, email accounts, financial accounts, social media accounts, websites, blogs, online subscriptions, online memberships and domain names. With a plan, the governing instrument can specify who is to manage or inherit such assets, or alternatively, direct that such assets be deleted, terminated, or closed after death.
- Minimizing Family Discord. Without a plan, there is a greater risk that the client’s wishes will not be well documented and that survivors will have conflict over the administration of the estate and remaining assets. With a well-conceived, well-communicated, and well-executed plan, a client can manage expectations, reduce legal conflicts, and put in place mechanisms for dispute resolution prior to litigation.
- Creditor Protection. Without a plan, assets have no protection from creditors. With a plan, it is possible to engage in asset protection, avoid probate, and take other reasonable steps to prevent creditors (including frivolous claims and/or divorcing spouses) from taking assets that could be retained instead in carefully structured trusts for the original owner or intended beneficiaries.
- Philanthropy. State intestacy statutes do not include charitable beneficiaries. With a plan, clients can choose to support the causes they care about at death.
- Values Legacy. Without a plan, there may be no written record of the clients’ values, wishes and intentions for how descendants should conduct themselves. With a plan, clients can be given the opportunity to document their values and wishes for their family members.
As indicated by the considerations above, planning is still essential regardless of the tax considerations. Moreover, all such planning must account for the changing nature and composition of families in the 21st century, and developments in the laws, social norms, and science and technology.
Kim Kamin is a Principal at Gresham Partners, LLC where she serves as Chief Wealth Strategist and a Client Advisor. She leads Gresham’s development and implementation of estate, wealth transfer, philanthropic, educational and fiduciary planning activities, and advises clients. Previously she was a partner in the Private Clients, Trusts and Estates Group at Schiff Hardin LLP where for many years her legal practice involved all aspects of trust and estate planning, administration and dispute resolution; advising families and closely held businesses on a wide array of wealth preservation, asset protection and succession planning issues; representing fiduciaries, custodians, and beneficiaries in estate administration and contested trust and estate matters; and serving as counsel for the formation and operation of not-for-profit entities.
Here Kim speak more about Estate Planning Considerations for the Modern Family at the 2019 FOX Family Office Forum, taking place July 16-17 in Chicago.