There are a variety of reasons for making sure your estate plan is up-to-date. Although many people think that estate planning is only for the wealthy, that premise is not really true. Investopedia defines estate planning as “the collection of preparation tasks that serve to manage an individual's asset base in the event of their incapacitation or death, including the bequest of assets to heirs and the settlement of estate taxes.” Actually, that is a pretty good definition, except that most people will not take the time to understand it. Hopefully, more simply stated, estate planning means to plan for the inevitable; death (or incapacity) and taxes. Since we all will die (and/or become incapacitated) and may have to suffer some sort of tax consequence, it is rather shortsighted not to plan for it. I understand that many people do not want to contemplate their own immortality, but there are only two choices. One, ignore it and pass on that burden to those we love and who are left behind, or two, take some basic steps now in order to leave a legacy. I once had a lady in my office for a Will signing. We sat in my conference room with her daughter, and after I had reviewed all of the documents with her, we were joined by a couple of witnesses and a notary public. I had noticed earlier that she seemed nervous, but as she took a pen in her hand, her body began to shake and it became readily apparent that she could not continue on. I asked the witnesses and the notary to leave. After my client put down the pen, I explained to her that she was not obligated to die immediately after she signed. Of course, I really didn’t say those exact words, but this lady then seemed to understand and was able to complete the signing. She realized that because she was uncomfortable with the subject of death, it was still going to happen at some point, so the best course of action was to ease the burden on her family by planning for it the best she could. Now, if I had a sense of humor, I would tell you that, sure enough, as soon as she signed, she suffered a massive heart attack and died, but that story is for another day. What do we plan for?
We plan for an orderly and definite plan to pass those things we own at our death to whomever we what. In other words, spouses, children, grandchildren, other relatives, friends, and charities. If we do not do that when we die the state decides who gets what. There are also ways, usually through gifting or trusts, to make these transfers happen quickly and less expensively.
In the case of incapacity, Powers of Attorney documents and sometimes trusts, appoint people to manage what we own and eventually to get these items to those who should get them.
In 2017, the estate and gift tax exemption was $5.49 million per individual, up from $5.45 million in 2016. That means an individual could have gifted $5.49 million to heirs and pay no federal estate or gift tax ($10.98 for married couples). The annual gift exclusion was $14,000 for 2017. Beginning in 2018, each individual can pass approximately $11.18 million during life, at death, or in some combination thereof, free of estate, gift, and generation-skipping transfer tax. Married couples can transfer approximately $22.36 million.
Through proper estate planning, provisions can be made to provide for the special needs of family and friends.
An often overlooked problem is for the timely and appropriate passing of business interests. Your business partner may not want to end up in business with your spouse, but your spouse deserves to share in the value of your business interests.
© DOUGLAS S. HOLDEN, P.C. All Rights Reserved.
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