When people think of Estate Planning they usually think about setting up a living trust and powers of attorney. A lot of budget outfits out there would deliver just that. The real value of working with an Estate Planning attorney is to take a holistic approach to Estate Planning and not only have quality, comprehensive legal documents in place, but get professional guidance on how to position all the pieces known as your “assets,” so that when the day comes, your family is not left in a financial bind.
Positioning the pieces consists of laying the groundwork to acquire the right assets at the right time. For example, a family with two working parents, minor children, a home and a mortgage, should strongly consider acquiring life insurance policies, and as early as possible (because life insurance premiums rise substantially with age). If one parent dies, and that income is lost, the death benefit will be immediately used to not only replace that parent’s income used for day to day expenses, but also to wipe out the mortgage, so that the surviving parent, who now might need to add the expense of daycare, can function without having to sell the house, or move to a more affordable neighborhood.
Another asset that goes a long way if acquired early in life is life insurance with a long term care rider – so that such policy kicks in later in life when long term care expenses may be so high, that without the long term rider, one may be forced to sell their house to pay for care (and thus leave no real property to the heirs).
When planning for college, everyone is familiar with 529 plans, but did you know that they count towards qualifying your child for financial aid? And, if the 529 beneficiary simply decides not to go to college, these funds cannot be used for anything else but would need to be withdrawn, and on their withdrawal, substantial tax would be due. Conversely, overfunding a whole life insurance policy or a 401k plan is one method of saving for college: those funds don’t count towards qualifying for aid, and a parent can loan themselves money from those plans, to help pay for college.
When planning on what you intend to leave behind, it’s a good idea to have a diversified mix of assets: life insurance proceeds are often utilized to pay taxes (income or estate) so that a piece of real property can be left to children (and its invaluable low property tax). Conversely, if an estate or a trust is Cash-Poor, a valuable piece of real property would need to be sold, so that such taxes can be paid.
Issues as simple as correctly taking title to real property can result in huge tax savings: for example, some married couples still hold title to their home in Joint Tenancy. Sure - at the death of the first spouse, the surviving spouse avoids court process (they receive the property outright as the surviving joint tenant by operation of law). However, the surviving joint tenant does NOT receive a step up in cost basis on the entire property. Conversely, if title to the home is changed to: Husband and Wife as Community Property With Right of Survivorship, or if the home is transferred to the couple’s revocable living Trust, the result will be that (1) the outright survivorship is still in place, and (2) a full step up in cost basis on the entire property is available to the survivor. An estate planning attorney should always check precisely how you hold title to your home, analyze the form of title, and possibly offer a superior manner of holding title to ensure that the survivor can get a full step up in cost basis, and thus drastically minimize capital gains taxes when the property gets sold.
Think of your meeting with an estate planning attorney as a meeting where you will receive guidance on how to structure your assets, as opposed to, a meeting to sign a bunch of legal documents that you barely comprehend. An experienced estate planner will guide you through the implications and consequences of leaving a true legacy, to ensure that your family will prosper, rather than face financial and legal challenges, and back that up with will legal documents that are customized to your specific family dynamic.