This post continues what was started last week and includes the remaining smart estate planning moves. Again, this is from Kiplinger online, written by Janet Kidd Stewart and published on 5/9/24. While most of Ms. Stewart’s information is worthwhile, I am in total disagreement regarding using an online “DIY” estate plan. I would sincerely advise against this approach. I have seen too many individuals regret that decision. They tried to save a little money upfront, which resulted in devastating consequences when that estate plan was found to be inadequate, incomplete, unacceptable, or otherwise worthless, or even worse, genuinely harmful to their loved ones.
If you need to update your estate plan, call me, and let’s discuss it. I would be honored to help ensure you have a plan ideally suited to your unique situation and protects your loved ones if something happens to you. You can reach me at 513-399-7526 or schedule a consultation through my website at www.davidlefton.com
7. Bypass the need for a portable exemption
“Surviving spouses can choose to carry forward any remaining estate tax exemption unused by their deceased spouse, but it may not be the best strategy if you have appreciated assets, Bronnenkant says.
In that case, you may be better off preserving assets for heirs with a bypass trust, which is similar to a SLAT except it is funded at the first spouse’s death. The second spouse retains limited access to the funds inside the trust, with expenses for health, education, maintenance and support generally approved. When the second spouse dies, remaining heirs simply assume control of the appreciated assets, which are outside of the second spouse’s taxable estate.
Some blended families use these trusts to provide for a surviving spouse and then eventually for children from a previous marriage. The tax savings happen when the second spouse dies, as the funds in the bypass trust go directly to the children, avoiding estate tax. They don’t get a stepped-up basis, but even the top marginal capital gains rate is lower than the federal estate tax rate, Bronnenkant says.
8. Safeguard assets from creditors
Uncle Sam isn’t always the biggest threat to preserving assets for heirs. If you’re a doctor, board member or an owner of a closely held business who wants assets protected from lawsuits and estate taxes, domestic asset protection trusts are a way for you to move money out of the estate and still be able to access it, Shenkman says.
You can create these irrevocable, self-settled trusts in 20 states. Although the money in them is out of the person’s estate and protected from creditors, the person funding the trust can also be a beneficiary.
“We have the most litigious society in history now,” Shenkman says.
9. Manage assets with revocable trusts
Some experts, including Shenkman, believe revocable trusts are a lot like annuities — more of them are sold than bought. He says they are often sold to clients as a blanket strategy for avoiding probate and cutting taxes, but the fact that they are revocable renders them ineligible for a lot of estate tax strategies. And in many states, probate isn’t that onerous. So why does he still use them? To manage assets as clients age or have health issues.
“It’s easier as successor trustee to take charge of assets in a revocable trust than as an agent under a power of attorney,” he says. Easy typically means less costly, too, because you have professionals on the clock for shorter amounts of time. A revocable trust with a separate tax identification number can help avoid scams on seniors as well, he says, preserving even more money for potential heirs.
10. Plan for Medicaid and special needs
Some people bristle at the term “Medicaid planning” because it suggests that someone is trying to cheat the system by preserving assets that could have been spent before Medicaid kicked in. But the rising cost of nursing home care, assisted living facilities and retirement homes means many middle-class households would be wiped out by a long stay, impoverishing the spouses of those in care.
“I look at it as long-term care cost planning,” says Regina Spielberg, an elder law attorney and partner with Schenck, Price, Smith & King LLP in Paramus, N.J. “For middle-class people, if one or both members of a couple need long-term care services, their assets are quickly being consumed.”
Medicaid has a five-year lookback period for examining income sources and transfers out of an estate. If the transfers aren’t to spouses or children with disabilities, it’s a problem, Spielberg says. She often helps clients construct a portfolio that can be drawn down to pay for the person’s care while safeguarding some assets for the spouse.
The best ways to do that vary by state. For New York clients, she often creates income-only trusts that let the spouse of someone on Medicaid stay in their home. These irrevocable trusts prevent assets from being sold to pay for care costs. Her New Jersey clients, meanwhile, typically use life estate deeds, which transfer property to heirs while bypassing probate, she says.
Special-needs trusts can also help you protect some money for loved ones. Shortly after her husband, Michael, 42, was struck and killed by a car in 2015, Melinda Campbell set up a special-needs trust for one of her children, who has a disability. The trust can provide income for her son without affecting his eligibility for public assistance.
“We [she and Michael] had met with the lawyer and received life insurance recommendations, but nothing had been finalized” before he died, she says. Even so, she says that directing a portion of her modest estate in this way will provide some peace of mind and cost savings.
11. Reduce fees for a simple estate
With most attorneys charging fees …for basic estate planning, you can pocket that money by going online.
Just be sure to shop carefully if you go this route, as the capabilities and customization vary. Some of them offer trust preparation while others don’t.
“A will is going to protect families, but some people feel they need that revocable trust,” says Gentreo’s Fry.
High-net-worth families with complex situations, such as multiple homes or a need for asset protection, will still need a lawyer to set up some of the other trusts discussed in this article.
12. Clean up investment clutter
Settling the estate is another place to find ways to keep fees down. On the time-is-money front, someone with accounts spread over multiple banks and brokerage accounts is making things difficult not only for themselves but especially for heirs.
“When [a person like this] dies, someone’s going to have to find all these accounts, figure out the basis in the stocks, and I’ll bet there are stock and bond certificates stuffed in a safe deposit box, “Shenkman says. “That, without question, is going to be a more costly, complicated estate settlement than if he had consolidated everything at one institution with everything saved on a laptop and backed up.”
13. Consider hiring a professional to serve as trustee
Litigation also costs more, so don’t forget the power of peace when trying to preserve money for heirs, experts say. To that end, consider hiring a professional to serve as trustee not only to relieve heirs of time-consuming duties but also to help avoid direct conflicts that tend to occur, for example, when one sibling is in charge of decision-making.”
If you need to update your estate plan, call me, and let’s discuss it. I would be honored to help ensure you have a plan ideally suited to your unique situation and protects your loved ones if something happens to you. You can reach me at 513-399-7526 or schedule a consultation through my website at www.davidlefton.com
Source: Kiplinger May 9, 2024. Written by Janet Kidd Stewart