Tuesday, November 19, 2013

Ilit's And Rlt's - Myths And Realities Of Estate Planning

By Frank Miller


Most of us don't put nearly as much though as we should into planning how our estates will be distributed, and the estimates are that nearly two-thirds of Americans die intestate, without having prepared a will. While their estates will eventually be distributed according the inheritance laws in their states, those laws may not reflect at all how they would have chosen to pass on their assets. If you want to avoid that situation, finding a firm of experienced estate planning attorneys is your best answer.

The Economic Growth and Tax Reconciliation Relief Act of 2001 (EGTRRA) threw many individuals for a loop when it came to estate planning. Tax laws are never simple but EGTRRA added a level of confusion rarely seen in advanced planning. For instance, between now and 2011 the federal estate tax is scheduled to decrease, disappear and then spring back to life. According to a Wall Street Journal article dated May 11, 2005, the "...current estate tax law puts estate-tax planners in an impossible situation...". With such uncertainty, some potentially damaging estate planning myths have surfaced. These financial "urban legends" stand in the way of prudent estate planning. Myth. Because of tax law uncertainty, you should avoid using life insurance trusts.

One thing I have noticed about building materials is that the old rule of thumb generally applies: you get what you pay for. The same is true in estate planning. But it is also true that legal documents such as wills and trusts oftentimes do not "speak" until the author is deceased or incapacitated. Because of this fact, in the case of estate plans the handyman analogy of buying double the building materials breaks down. If a wall is improperly built, it can be torn down and redone. But if a will is improperly drafted, or if it fails to state the intent of the author, there is often no opportunity for a second try. Rather, in many cases, when the author of the will or trust is incapacitated or deceased, the planning "solution" either fails, or has completely unexpected and unwanted consequences. Still, to be a good consumer of legal services, self-education is essential in communicating needs to an estate planning professional. The following is an overview of some of the major estate planning topics that should be applicable in most states.

As a youngster, I recall seeing a thick blue booklet in my family's bookshelf written by Norman F. Dacy, entitled How to Avoid Probate. The book is a classic, and helped to spawn the move within estate planning field away from wills, and toward "living" or "inter vivos" trusts (which is Latin for "during life"). Some now associate the word "probate" with the twin evils of expense and delay. Many conclude that probate is "bad," but may not have any idea why this is so, or even what exactly probate is. Simply stated, "probate" is a court-supervised method of transferring property and compensating creditors after death. In California, for instance, there are two main methods of communicating one's wishes for disposition in a court supervised probate proceeding. The first is through a properly witnessed and executed will. The second method is through a "holographic," or handwritten will (although, not all states offer a holographic will). To be valid, both types of wills have specific requirements, the details of which are beyond this article.

With that information, estate planning attorneys can then explain to you the best alternatives for seeing that your estate is handled as you wish. They will not only discuss wills and trusts; they will present options which you can employ immediately to lessen the taxes and probate costs on your estate.

The numbers tell a different story. Since 2001, the estate tax exemption amount (the amount of property each person can pass free from federal estate taxes) has more than doubled. According to the myth, the increasing estate tax exemption amount means that fewer people will be inclined to give to charity. The reality is that during the same time period, charitable giving nationwide rose by nearly $90 billion! If the myth was correct, how could this be? The steady rise in charitable giving is based upon the fact that charitable giving is a grass roots effort. The vast majority of charitable gifts are made by individuals. Private foundations and corporate gifts account for relatively small slices of the charitable giving pie. 77% of all charitable gifts are made by individuals and there is no indication to believe this trend will reverse itself. America is truly a philanthropic country; estate tax reduction is rarely the primary motivating factor for making a charitable gift.




About the Author:



No comments:

Post a Comment