March 19, 2004
Annual Estate Planning Letter
Dear Clients and Friends:
I contact my estate planning clients on a regular basis to determine whether they have experienced any changes which might impact their estate planning. As you know, estate planning is the lifetime and lifelong process of implementing the appropriate legal arrangements. You must constantly review your estate plan to ensure it fits your present situation and provides for your current wishes because the legal arrangements in place at the onset of disability/incapacity and at the time of death will be controlling. Even if you have planned your estate well, you should consider updating your estate plan after any of the following events:
· Family Changes. The marriage, divorce, separation, illness, incapacity, or death of anyone
included in your estate planning, the birth, adoption or death of children and grandchildren, or other major life changes, can all lead to estate plan modifications.
· Change in Financial Circumstances. What may have been an appropriate estate plan when
your income and net worth were much lower or higher may no longer be appropriate today.
· Geographic Move to a New State. Different states have different laws and ramifications.
Anytime you change your domicile from one state to another, your estate plan should be reviewed and updated.
· Change in Tax Laws. Anytime there is a change in the federal or state tax law (especially a
change in the Federal Estate Tax law), changes in your estate plan may be required. What might have been a proper structure under old tax law may no longer be appropriate. As discussed in our Spring 2003 Estate Planning Update and our Fall 2003 Estate Planning Alert, the states of Maine and Massachusetts have decoupled their state estate tax systems from the Federal Estate Tax system. For estates of 2004 decedents, those worth more than $850,000 will be taxable to Maine by it’s new state estate tax law. Massachusetts has decoupled and enacted a new estate tax which will now require the payment of state estate taxes, even if there is no federal estate tax liability if your estate exceeds $850,000 in 2004; $950,000 in 2005 and $1,000,000 in 2006 through 2010. As such, we recommend that anyone living in Maine or Massachusetts who has an estate plan with a Revocable Living Trust that was signed before January of 2003 should consult an estate planning attorney as soon as possible to discuss the impact of these state estate tax law changes and what changes, if any, should be made to their Revocable Trusts at this time to avoid unanticipated new state estate tax even in estates where no federal estate tax is due. Other important tax law developments include:
· The Federal Estate Tax Exemption Amount (a/k/a Unified Credit) for Decedents Dying in 2004
Increases to $1,500,000. The Economic Growth and Tax Relief Reconciliation Act of 2001 increases the amount of property that can pass free of federal estate tax for deaths occurring between 2004 and 2009. In addition, the top federal estate tax rate will decrease between 2004 and 2009. The federal estate tax is repealed in 2010 and reinstated in 2011.
· Federal Gift Tax Exemption Remains at $1,000,000.
· Federal Generation-Skipping Transfer Tax Exemption Equals Estate Tax Exemption.
· Future Federal Estate Tax Law Changes. Given the growing deficit, it appears unlikely that a
permanent repeal will pass Congress in the near future. It appears more likely that the estate tax will be reformed in some manner before the “sunset” of EGTRRA in 2011. For a table summarizing the changing amount of the estate tax exemption and the top estate tax rates under EGTRRA from 2004 through 2011 under current law, see our Estate Planning Update about The 2001 Tax Act on www.moneylawoffices.com or call us for a copy.
· Special Circumstances. Sometimes a child has special needs due to physical or mental limitations.
Sometimes a surviving spouse’s ability to earn a living changes due to a disability. Such situations create special needs that often require special planning.
· Two Year Estate Planning Review Meeting. We suggest that our estate planning clients meet with us at least
every two years for an estate planning review meeting to ensure that their ongoing and changing objectives and circumstances will be appropriately met by their estate plan. Over the years, as real estate values increase, stock market prices rise, businesses are started and grown, and life insurance is purchased, what was once a modest estate can quickly qualify for tax planning. For these and many other reasons, we recommend that you have your estate plan reviewed every two years. Please call us if you would like to schedule a meeting to do so.
· Five Year Advance Directives Update. A standing recommendation to my estate planning clients is that they
should update their Advance Directives (including their Durable Power of Attorney for Financial Matters, Durable Power of Attorney for Health Care, and Living Will) at least every five years to avoid the possible problems associated with “staleness” of the documents when trying to use them for some purpose. For example, a financial institution might be hesitant to allow an attorney-in-fact to act under an older Durable Power of Attorney for Financial Matters. Likewise, a medical institution might be hesitant to allow a health care agent to act under an older Durable Power of Attorney for Health Care.
· Upon any major change in your needs, circumstances, goals or objectives, or those of your beneficiaries.
If you have experienced any of the foregoing changes in your circumstances, or if you have any questions or concerns, please do not hesitate to contact us.
The Importance of Revocable Trust Funding. I would also like to remind you of the importance of funding your Revocable Trusts. As you know, with limited exception, only those assets transferred (that is, legally retitled) into your Revocable Trusts will avoid the probate process. If you have Revocable Trusts, you are responsible for funding your Trusts. Ideally, each of you should fund (that is, legally retitle) at least $1,500,000 of assets or a roughly equivalent amount of assets as between spouses, into each of your own Revocable Trusts to ensure that your trust estates are properly equalized. You should be sure to appropriately increase the amount of assets funded into your Trusts as the Unified Credit increases over time. Be conscious of the manner in which you take title to new assets that you aquire. Avoid individual ownership of assets as they will be subject to probate. Refer to the Revocable Trust Funding Recommendations I provided to you when you signed your estate planning documets, or call us if you would like another copy. While the manner in which you own your assets may not impact your ability to use and enjoy your assets during your life, as we have discussed, the manner in which assets are owned at death will control how those assets are distributed.
Estate Planning for Married Couples. For married couples, special estate planning, including the use of Revocable Living Trusts containing Credit Shelter Trust provisions (that is, “A-B Trusts”), is required to ensure that both spouses’ estate tax Unified Credits are utilized, which basic estate planning arrangements typically do not accomplish.
Additional Estate Planning Techniques for Clients with Taxable Estates. Phase II of the estate planning process can involve the implementation of various additional techniques and strategies for clients who, due to the size of their gross estates, would be subject to the Federal Estate Tax (that is, currently >$1,500,000 for individuals, and >$3,000,000 for married couples), or Massachusetts or Maine state estate tax as set forth above, or where otherwise appropriate. Through proper planning, one or more of the Phase II estate planning techniques outlined in our Estate Planning Client Handout (see online at www.moneylawoffices.com or call us for a copy) can help to alleviate the problem of "estate shrinkage" caused by Federal Estate Taxes in the absence of such planning. Options include lifetime gifting programs either outright or in trust, Family Limited Partnerships or LLCs, Irrevocable Life Insurance Trusts, Grantor Retained Annuity Trusts (GRATs), and Qualified Personal Residence Trusts (QPRTs) are possible additional estate planning strategies where appropriate.
Lifetime Gifting Programs and Annual Gifting. For clients that have decided to or would like to implement a lifetime giving program to make use of their $11,000 Annual Federal Gift Tax Exclusions, time is of the essence. The tax law allows each individual to give up to $11,000 to any number of different beneficiaries in any one calendar year free of gift tax. This is on a strict calendar year basis. As a result, we recommend that annual gifting be done as soon as possible in every new calendar year for that year, especially for clients that have implemented gifting-driven estate planning arrangements such as Crummey Trusts For Gifts To Children, Irrevocable Life Inusurance Trusts, Family Limited
Partnerships, Family Limited Liability Companies, and others. For additional information, see the Advantages and Disadvantages of a Lifetime Giving Program piece in our Estate Planning Client Handout.
Important Estate Planning Roles. A periodic general review of Successor Trustees, Executors (a/k/a Personal Representative), Guardians of Minor Children, Financial Attorneys-in-Fact, Health Care Agents, Beneficiaries, and other estate planning document provisions is always appropriate. Your wishes regarding these important roles and the disposition of your assets upon death may have changed since your estate planning documents were signed. If you do not update your documents to reflect your current wishes, your current wishes will not be followed.
Beneficiary Designations. Beneficiary designations should be done with the same care that you do your other estate planning. You should contact your plan administrators and custodians to determine your present beneficiary designations and should confirm that all of your beneficiary designations (Both Primary and Contingent Beneficiary Designations) on your Insurance Policies, 401(k)s, Annuities, IRAs, Investment Accounts, and other Beneficiary-Designated Property provide for the distributions which you desire. Your Beneficiary Designations should be revisited at least annually to ensure that they are consistent with your wishes. In addition, each year you should review your life insurance, long term care insurance, and investment plans with your other advisors to ensure that they continue to meet your goals and objectives.
No Medicaid Planning. As we have discussed, Money Law Offices, PLLC does not engage in advising its clients about Medicaid Planning legal matters. Also, Revocable Living Trusts do not provide any creditor protection planning or asset protection planning benefits other legal techniques are available to accomplish these objectives. It is important to note that these days Long Term Care Insurance (LTCI) has become as important to many as life insurance given the increased costs of nursing homes, assisted living and home care.
Family Communication. Lastly, I encourage you to keep your family informed. While these issues are sometimes difficult to discuss, at some point, all family members should gain some awareness of the financial, medical, and legal arrangements that can affect the entire family.
Ongoing Estate Planning. Often clients assume that once an estate planning strategy has been carefully considered and implemented it will perform as planned. Clients may not understand that individual circumstances, the economy, and the laws can and do all change, rendering even the most well crafted strategies ineffective or less than optimal. Periodic review of existing documents by trusted counsel is advisable to ensure that the estate plan continues to meet the client’s needs and conforms to his or her wishes, as well as to provide the opportunity to make any needed changes. As set forth above, we recommend, at minimum, an every Two Year Estate Planning Review Meeting with clients.
38th Annual Heckerling Institute for Estate Planning. Attorney Money attended the University of Miami School of Law’s 38th Annual Heckerling Institute for Estate Planning in Miami Beach, Florida in January, 2004. At the Institute, which is widely recognized as the nation’s leading estate planning program, recent developments in estate, gift, and income taxation were examined. Other topics addressed at the Institute included: Charitable Estate Planning, Domestic/Delaware Asset Protection Trusts (DAPTs), Family Limited Partnerships (FLPs), Estate Planning for Spouses, Irrevocable Trusts, Nonprofit Organizations, Foreign Trusts, and various case studies involving Family Business Succession Planning, Estate Tax Returns, Ethics in Estate Planning, and the future of the Transfer Tax System. Please contact us if you would like more information about any of these topics.
Thank you for your attention to these important matters. Should you have any questions or require additional information please do not hesitate to contact us. We look forward to continuing to be a resource to our clients and friends.
Very truly yours,
Kenneth F. Money, Jr.