Why Family Estate Planning Isn’t DeadJanuary 11th, 2011
Some financial experts have said that the current estate tax exemption limit—in effect through 2012 and set at $5 million and $10 million for couples—will lead to the death of estate planning. But family estate planning is about so much more than avoiding taxes alone. It's about your legacy. And your legacy is build upon several factors, many of those having more to do with family than with money. We call these factors “The Four Ps of Family Estate Planning” and here they are:
- 1. Protection. Trusts are still valuable ways to protect your family's inheritance from divorces, legal issues and spousal remarriage. We all know the bleak statistics on divorce. Chances are, somewhere along the line, your heirs will be impacted by divorce (and so will your family's inheritance). Other legal issues including debt and tax problems can ravage a family's wealth as well. And, finally, without a solid estate plan, your well-intentioned spouse may eventually get remarried and unwittingly leave YOUR hard-earned money to the new spouse and his or her children, instead of your own children and grandchildren. It happens more than you know.
2. Probate avoidance. Probate is the process in which property is distributed by the court after you die. If you do not have will or any family estate planning in place, it will cost your family precious time and money to receive inheritance through the court. With an estate plan, much of that time and money can be bypassed.
3. Privacy. There's another very important reason to avoid full probate proceedings, and that's privacy. All property left in the hands of the court system to distribute is a matter of public record. That means the value of your home and other property will be publicly listed if left in probate. This leaves your beneficiaries vulnerable to creditors and professional property brokers who know exactly what your family has inherited.
4.Peace of mind. This final point has very little to do with money, and everything to do with starting your legacy off right. Beyond structuring trusts, family estate planning includes preparing your will and advance directives so that your wishes can be carried out by your family. A living will, in many ways, can be just as important as a last will and yet less than 1/3 of Americans have one. Beyond that, a living trust, powers of attorney and HIPAA authorizations can help create a solid way for your spouse, children or other loved ones to carry out your long-term care and end-of-life wishes.
If you have an estate plan in place, you most likely created it to address tax concerns. For that reason, run, don't walk, to an estate attorney to re-evaluate its effectiveness OUTSIDE of tax purposes. Some of the decisions you made in the estate plan for tax reasons may no longer be relevant (although some still are: Illinois' state estate tax has kicked back in this year at a $2 million exemption). It is important to consult with an estate planning attorney on any of the non-tax-related issues above (not only your CPA or tax advisor, who may not be as well-versed in such issues as probate).