ESTATE PLANNING—FACT, FANTASY OR FRUSTRATION?

“HAPPINESS IS DETERMINED MORE BY THE STATE OF ONE’S MIND THAN BY ONE’S EXTERNAL CONDITIONS, CIRCUMSTANCES, OR EVENTS .…” THE DALAI LAMA

 

What does “An Affordable Affluent Lifestyle” mean to you? As an attorney whose law practice over 30 years has evolved exclusively into the estate planning arena, “affordable” and “affluent” often mean “those who have more money than I (we) do.” It doesn’t seem to make much difference to those above the poverty level (note: $22,000 gross income for a family of four)i how much financial wealth they have, often the focus is on others who appear to have more than they have. “I’m not able to keep up with the Jones,” is their woeful demeanor. Often the more tangible assets one has, the more fearful they become as they age: there is more to insure, more to protect, more to lose, and increasingly more unknown healthcare expenses, etc., and the fears multiply.
The good news is that wherever you are on the lifestyle curve, everyone really wants not financial wealth, but financial wellbeing. If one has a strictly materialistic orientation, estate planning is a must; if one has financial goals that include health, wealth, and relationship satisfaction, estate planning is truly a necessity for all.
“The greatest wealth is health”, said Ralph Waldo Emerson. I had a now deceased client worth many millions who would have given it all up to live a longer, healthier life.
Especially in our present economic and political environment, as one approaches retirement, rather than an emphasis on wealth creation, most persons over 55 emphasize wealth preservation. Since one does not know when they might become incapacitated or die, while you are healthy and preferably before age 55, creating an effective estate plan allows you to choose not only the proper investment, asset allocation, and diversification, but the appropriate executors and trustees of your estate. This way, you choose your beneficiaries and causes rather than having your legacy be to leave a financial and emotional mess that gets tangled in the web of family vicissitudes, the courts, and state law. If you don’t have a Will, the State of Texas does have a Will for you—it is very costly, time consuming, and it may not follow your desires. Leave a legacy of love, not the legacy of a loser.
Statistically 58% of Americans die without a Will;ii a much higher percentage become incapacitated without the proper living estate planning documents. Is it fear of the unknown–fear of the cost, fear of alienating family members that causes this estate planning paralysis? “Most of the shadows of life are caused by standing in our own sunshine.” iii
Let’s diffuse the fear and infuse some “Trust, Quality, Value, and Joy” into better understanding estate planning, both in the event of incapacity and at death. Estate planning should always address YOUR goals. I counsel clients not to sign any estate planning document that they don’t understand. To assist us in defining what issues might be of concern, consider the following:

  • I want a comprehensive estate plan which includes my own healthcare plan.
  • I want to control who will make healthcare decisions for me in the event of my incapacity.
  • I want to appoint guardians for my minor children.
  • I want to plan the transfer and survival of the family business.
  • I want to disinherit one or more family members.
  • I have one or more pets that should be protected and cared for.
  •  I want to define my funeral and burial last rites.
  • I want to protect my children’s inheritance in the event my surviving spouse chooses to remarry after my death.
  • I want to plan for my child or children from a previous marriage.
  • I don’t want my IRA liquidated in a manner that my children withdraw the funds all at once.I want to leave an endowment for my church or one or more of my favorite charities or causes.

Reflect on the nature and extent of your property, as well as your loved ones and possible charities or causes to which you would like to leave a legacy. Remember that items such as bank accounts, life insurance, 401(k)s, IRAs, etc. may have specific beneficiary designations which cause such property to pass outside your Will to the specific persons you have designated in that particular document. Changing the title of your beneficiary designations to the estate of “Your Name” under your Will or Revocable Trust allows your Will or Revocable Trust to dispose of your property according to your specific estate plan. Your “babysitting instructions” may include 1) guardianship trusts for minor children, 2) dynasty trusts so loved ones don’t receive all of the life insurance or brokerage account funds at once, 3) a bypass, family, or credit shelter trust that provides for a surviving spouse with your children being the ultimate beneficiaries, 4) special needs trusts, and/or 5) a retirement benefits trust so the IRA principal won’t be prematurely cashed and excessive ordinary income taxes paid by anxious-to-spend beneficiaries.
Consider the people you may want to be in charge of your medical or financial affairs if you are incapacitated and not able to do so. These may or may not be relatives. To some degree it should depend on their temperament, willingness to serve, and other factors. Often, spouses appoint each other as the first person in charge, and if they have responsible children, one of their children as the backup person in charge. One of the biggest mistakes that occurs is when there is no estate plan “What happens to the financial assets if the principals are killed in a common accident?”
In order to make the basic estate planning documents easily understandable, I have combined the two “essential” parts of estate planning into:
ONE: The documents useful during one’s lifetime (in green in the wheel below)
TWO: The documents necessary at death (in purple in the wheel below).

THE “ESSENTIAL WILL PACKAGE” SM IS A COMPREHENSIVE APPROACH TO BASIC ESTATE PLANNING:

Essential Will Package SM documents include:

  • Last Will and Testament or (Revocable Living Trust with Pour over Will)
  • Appointment of Agent for Disposition of Remains
  • Organ Donor (optional)
  • Living Will (Directive to Physicians)
  •  Healthcare Power of Attorney
  •  Privacy Act Release (HIPAA)
  •  Declaration of Guardian
  • Financial Power of Attorney (Strengthened considering the Patriot Act)
  • Two Laminated Emergency Cards

There are also advanced estate planning documents which are especially useful for the larger estates–those in excess of the applicable federal estate tax exclusion amount of $5,000,000 per person in 2011 and 2012 (note: this is an estate tax issue for less than 4% of the adult populationiv). These advanced strategies can be used alone or in conjunction with others:

 

  • Bypass, Family, or Credit Shelter Trusts (often misused in basic estate planning)
  • Irrevocable Life Insurance Trust (ILIT)
  • Qualified Personal Residence Trust (QPRT)
  • Limited Liability Company (LLC; PLLC)
  • Limited Partnerships (LLP’s) including Family Limited Partnerships (FLLP’s)
  • Grantor Retained Trusts—Annuity, Unitrust or Interest (GRAT, GRUT or GRIT)
  • Intentionally Defective Grantor Trusts (IDGT)
  • Charitable Planning Documents—Charitable Remainder Trusts (CRAT’s & CRUT’s), Charitable Lead Trusts (CLAT’s & CLUT’s), and Private Foundations

Be a member of the “Can Do Club” and initiate your first meeting with an estate planning attorney. This is NOT optional; it is a MUST DO! This will enhance your feelings of living “An Affordable, Affluent Life Style.” It is important, however, to work with an attorney qualified in this specialized area of the law so that this complex subject can be simply understood and accurately applied to create an estate plan that is not only tax efficient, but that reflects your values, and creates the confidence that leaving a loving legacy brings, both during life and at death.

Having a legally effective, efficient to administer, and thoughtfully considered estate plan will allow you to live “An Affordable, Affluent Life Style” because you are now free of fantasy, frustration, or fear of the unknown. You can change your family tree by leaving a meaningful legacy. You have a well-drafted estate plan that reflects your personal legacy materially as well as emotionally. As a member of the “Can Do Club,” “I have the power to be me!”

 

 

Author: Robert M. Judd, MBA
Judd and Associates, PLLC
7920 Beltline Road – Suite 670
Dallas, TX 75254
214.363.3322
rjudd@drjuddswills.com
i United States Census Bureau, 2009
ii AARP Magazine, September/October 2011 page 22
iii Ralph Waldo Emerson
iv IRS Statistics 2010
August 22, 2011

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