The Benefits of a Simplified Estate Plan

Thus far in the Estate Planning section of the Ballast Atheneum, we have discussed an introduction to estate planning, probate, trust planning, and planning for a legacy – all of these topics can be expanded upon significantly.  However, this week we thought it would be important to discuss simplifying an estate plan.  Most estate planners, rightfully so, try to create an estate plan that does not need to be amended significantly unless a life event happens.  This is a benefit for the client.  Sometimes, in a similar mindset, however, clients may desire to add increased parameters to “protect” their beneficiaries.

Often times during these conversations, we hear people desire to have some type of “control from the grave”.  Which essentially means after the person’s death, they want to put limitations on their beneficiaries of how/when they can use/access the assets.  In some cases, however, as the client describes what their intentions are, an immediate red flag goes up indicating that managing their wishes is going to be very difficult and/or expensive.  While everyone has the right to do whatever they want with their assets, many times people are simply not thinking far enough into the future about how the parameters they create may cause an undesired burden (or cost) to their beneficiaries.

Sure, we all agree that it may not be in the best interest of an 18 year old to inherit millions of dollars.  How the plan is designed to protect the 18 year old – or 60 year old – is of the utmost importance.  To elaborate on potential ways to overdo an estate plan, we asked Kevin Johns, an estate planning attorney and Partner at Wyatt Tarrant & Combs, LLP, to help us understand what his clients may typically find challenging when considering their estate plan.

Kevin stated that “estate planning can be much simpler than most people think.  I find that many clients think estate planning is too complicated or is only for the very wealthy and don’t think they need any planning at all.  Other clients are overly focused on estate tax savings based upon much lower exemptions from federal estate tax in years past.  When the estate tax limits were lower, many couples created complex plans with a bypass trust in order to lower or eliminate estate tax.  Given the rise in estate tax exemptions (currently $5.49 million per person and $10.98 million per couple) and the portability of a deceased spouse’s unused exemption amount, many of these couples no longer need such elaborate plans.  In fact, such plans can actually create future tax problems.  Other folks get so involved in the contingencies of the estate plan that they become unable to move forward with their plan and simply do nothing.  Others, however, may overlook or forego many of the most important non-tax aspects of their plan in their quest to simplify their estate plan.”

We believe, and I would guess most estate planning attorneys would agree, that an estate plan cannot be perfect.  A good attorney can draft the plan to be close to perfect but it is impossible to draft the perfect plan that considers every single possible outcome.  We simply do not know what the future will bring.  Keeping this in mind can be helpful when completing an estate plan.  We always encourage clients to make it as good as possible but to try not to get hung up in the weeds.  Sometimes it is best to simply put a plan in action (as best as one can) and then continue to monitor it as time passes.  This is especially important with young children or financially challenged beneficiaries.  Remember a “good” plan is better than no plan at all.

Kevin also mentioned that some key best practices when considering how complicated an estate plan and/or estate planning process needs to be.

  1. Review current plans, especially when Trusts are involved. If you have already established a complex trust for estate tax planning you should have the trust reviewed.  If it is determined that such a trust is no longer needed for estate tax purposes, you may be able to amend it to simplify its provisions for your family.  You may also want to amend the trust to avoid negative income tax results.
  2. Review beneficiary designations. Specifically considering the titling of assets in conjunction with your estate planning documents.  Are such designations outdated?  Do such designations need to be revised to be consistent with your updated estate plan?
  3. Consider non-tax reasons for Trust planning within your Estate Plan. Some reasons may include (but are not limited to) the following:  Desire to avoid probate?  Asset protection?  Divorce?  Remarriage?  Second marriages?  Children outside the marriage?  Protection of assets for multiple generations in the family?  A family owned business?  Charitable endeavors?

In some cases which may appear rather simple, a more thorough estate plan may be beneficial.  Kevin explains that these cases may include areas such as “planning for a child/loved one with special needs, an elderly parent, or relative who may require the creation of a comprehensive Special Needs Trust.  These Trusts are designed to preserve a beneficiary’s eligibility for Medicaid and Supplemental Security Income benefits, help with establishing guardianships and conservatorships, assistance with personal injury/medical malpractice settlements, provide advice and support estate/trust administration, and provide guidance with health care decisions and/or creation of Powers of Attorney and Living Will Directives.”

We are encouraging all of our clients to consider their estate plan during 2017.  If you already have one, please pull it out and review it while considering the following: 1) Is it still relevant?  2) Is it too complicated?  3) Do you still understand it?  4) Are there changes that need to be made?  If you do not have an estate plan (whether you have a $200,000 estate or a $5,000,000 estate) we would encourage you to call our office and let us start the conversation.  Finally, and just as important, please take some time this year to review your beneficiaries and ensure that they are titled exactly how you prefer.  We are always here to help guide you through what can be an intimidating process.

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