Why you Need an Estate Plan Post 2013 Tax Act

Estate planning is the process of designating, during
your life, the disposition of your assets upon your death in a manner that
attempts to eliminate administrative uncertainties, reduce taxes, and maximize
asset protection. The process of estate planning typically includes preparation
of legal documents such as a Will, but it also includes restructuring of assets
and beneficiary designations, all in the context of minimizing taxes and
maximizing asset preservation. As part of this process, it even may be advisable
to make lifetime gifts to family or charity.
Failure to have an estate plan results in your assets
being distributed according to the probate laws in your state, which typically
provide that if you are married and have children, your spouse and children
each will receive a share of your assets. As a result, your spouse could
receive only a portion of your estate, which may not provide sufficient
support, and any inheritance passing to minor children will be managed by the
court during the children’s minority and distributed to them outright at age 18.
If you and your spouse are both deceased, the court will appoint a guardian for
your minor children without input from you.
A typical estate plan provides for the disposition
of your assets upon death through a Will and Revocable Trust. The Will designates
the executor of your estate, a guardian for any minor children, and directs
your probate assets into your Revocable Trust. Your Revocable Trust then
provides for the ultimate disposition of your assets. Revocable Trusts avoid
the publicity and fees of probate if assets are placed in them during your
lifetime or are payable to them at your death by beneficiary designation.
A Revocable Trust can be drafted to take advantage of death tax credits and
asset protection upon your death by establishing trusts for your spouse and
children that will not be subject to death tax or claims of their creditors.
Making provisions for managing your affairs upon your incapacity should also be
part of your estate planning. A durable financial power of attorney will allow
a designated individual or corporate fiduciary to manage your financial affairs
should you become incapacitated without going through the process of having you
declared incompetent and a guardian appointed for you by the court. A health
care power of attorney allows a designated individual to make health care
decisions for you if you are incapacitated. A “living will” can provide that
you do not want to be put on life support or receive food or hydration if you
are terminal, in a persistent vegetative state, or in the final stages of
Alzheimer’s or other dementia.
Do you need tax and asset protection planning as part of
your estate plan? Most assuredly you do.  Under current law, there is a
credit against estate tax of $5,250,000 per person, so a married couple has a
combined credit of $10,500,000. That credit will be indexed for inflation.
While this seems like a large figure, if you combine the equity in your home(s)
and the value of retirement accounts, other liquid assets, business interests,
and life insurance proceeds, are you close? Do you anticipate an inheritance or
the sale or your business? Even if currently you do not need extensive estate
tax planning, you should consider the income tax implications of your assets
upon death, such as what is the most tax-efficient designation for your
retirement accounts. Most clients are interested in ensuring that the assets
they have worked hard to accumulate are protected from creditors, including
claimants, subsequent spouses, spendthrifts, and former spouses of children. By
establishing trusts and carefully selecting the trusts’ terms and fiduciaries,
clients can protect their estates from these exposures.
Another component of the estate planning process is
evaluating your assets and considering whether they should be restructured. If
you have an interest in a closely-held business, what happens to that interest
upon your death and should a buy-out agreement be considered? Should you be
investing in exempt assets such as retirement accounts, tenants by the entireties
property, and life insurance? Under the North Carolina constitution, life
insurance payable to a spouse and/or children (or a trust for their benefit) is
exempt from the claims of creditors of the insured or his estate. If you own
liability-generating assets such as rental property, you might consider moving
that property into a limited liability entity such as a limited liability
company or at least procuring a large liability policy. Are the methods of
distribution for your retirement accounts formulated in such a way to maximize
asset protection and minimize income and estate taxes? If you have a taxable
estate, it might be prudent to make lifetime gifts of your property to others
or to charities to reduce your estate by the value of that asset as well as all
of its appreciation and future income. Source: