GETTING TO KNOW YOU – ESTATE PLANNING PROCESS
By Tim Barkley. February 2016.
In beginning the estate planning process, your estate planning attorney should begin by getting to know you. Planning is for people. It is not a technician’s exercise in efficiency, though it must be both effective and efficient. Planning is about you and your values, not about taxes or money or assets. Your assets, money, and tax situation should be aligned with your values, and not the other way around.
Remember that probate and tax avoidance are subservient to the primary goals of estate planning: (a) providing for living dependents, and (b) maximizing the inheritance. Your goals need to drive the planning.
Probate and tax avoidance only serve the second of these goals, and thus even the most elegant and tax-efficient plan will be untenable to your surviving spouse if it endangers his or her access to and use of monies and assets for reasonable needs. Other provisions, such as charitable giving, need to stand on their own feet. You should give because you want to give, not to get a tax benefit.
In getting to know you, and after exploring your values generally, your attorney will be seeking the answers to several questions that will determine the type of estate plan to use. The following is not a complete list, but is a good starting point.
First, your attorney needs to know about your estate tax situation. If your estate is greater than the amount which you can pass tax-free at your death (currently $2.0 million in Maryland), you should consider tax avoidance planning. Tax avoidance is the totally legal means of reducing or eliminating taxes using mechanisms given us by Congress in the Internal Revenue Code. It is not tax evasion. One wag once quipped that the difference between tax avoidance and tax evasion is about ten years – in the Federal pen.
Tax avoidance planning for married couples usually requires the use of trusts at the death of the first spouse to die to avoid tax. The trust created at the death of the first spouse to die – commonly called the “bypass,” “credit shelter” or “family” trust, or “A-B trust” – holds the amount of the tax exemption of the first spouse to die. The surviving spouse receives all the income of the trust, and principal at need.
This allows the trust principal to be available to the surviving spouse without being owned by him or her and thus taxed in his or her estate. All of this complication might be valuable, saving your family literally millions of tax dollars, or might be elegant overkill. Make sure your plans drive the planning process.
Second, your attorney needs to know whether you have minor children or disabled beneficiaries and understands your goals for those unique individuals. Minor children may not receive more than $10,000 without the interposition of a trust of some sort. If you do not write your own trust, the state, which loves you and has a plan for your money, has a trust for your children. That trust, while better than nothing, is not much better, and is singularly inappropriately drafted. Families would be well served by drafting their own trust.
Disabled beneficiaries need special attention paid to their unique needs. Whether you are caring for a disabled parent or child, or a disabled spouse, your planner must take particular care to understand the personal situation of the disabled person and the family dynamics. We have said that estate planning is not a technical exercise. Special needs planning is even more so not about technique, but about the disabled person and all of the surrounding people and circumstances.
Third, your attorney must consider any special situations in your family that might mandate extraordinary planning. You might be the owner of a family business or family farm, or, on the negative side, might have a spendthrift child or one with a criminal history or a tendency toward drug use or alcoholism. Any family situation requires attention to detail and personality, but these special situations call forth the creativity and dexterity of your attorney to an extraordinary degree.
Fourth, your attorney must be sensitive to your unique desires. For example, you might want to leave a significant bequest to charity. If your planner is only doing tax or probate avoidance planning, and not people planning, he or she might miss this important facet of what makes your plan truly your own. Make sure your attorney follows your direction, and not the other way ’round.
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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