federal estate tax

Best Estate Planning Advice: Don't Let Estate Tax Make You Bankrupt

    I want to tell you about a family I’ve recently been working with.  Most families don't have to be too concerned about getting wiped out by the federal estate tax because the exemption amounts these days are so high.  Maybe about 1% or less of the population or families in America are subject to that tax.  But, I was working with a family recently that had accumulated some wealth.  The father had passed away a few years earlier and now I'm working with both the mother and the children to try to preserve as much as they can.  They came in and I quickly discovered that the legal work that had been done for the father and the things that were done when the father died, extremely confused the family.  They had no idea what had been done, so we took several hours sorting through a bunch of complex legal documents and estate tax returns to just get them up to speed so that they understood how the husband had left things to his wife, to their children, to their grandchildren, and even to their future great-grandchildren.

     So they wanted to do whatever they could do to minimize the tax, but they really wanted to keep it simple.  We had lots of conversations about things, like the step-up in basis and appreciated stock.  We talked about the double step-up in basis so things got stepped up when the husband died and again when the wife died.  This can really save a lot of capital gains tax.

     We talked about the estate and gift tax and how they had really maxed out on the lifetime giving while the husband was still alive.  We talked about how there's the potential that mom may set up some charitable interest or some donor advised funds through some of the large financial institutions to provide some income tax benefits and some estate tax avoidance. We also talked about how mom would want to leave things to her children, grandchildren, and future great-grandchildren.  We talked about the income tax aspects of all of this.  So. it was a really good discussion, kind of a high-end discussion.  Those are the kinds of things that must be discussed with families around Louisiana who have accumulated some wealth.  There was a lot of discussion about how the husband had left his wife the usufruct of certain things.


     When there are large estates, these are some of the topics that we have to address to make sure that Louisiana families can protect what they have worked so hard to accumulate for their loved ones.  So, if you are in the situation where you are concerned about avoiding this 40% estate tax, losing 40% of everything you own when you pass away, then you may want to reach out to us, we can have a conversation and take it from there.

What If I Already Have a Trust?

I was speaking with one of my partners recently (our firm has estate planning lawyers in 10 states), and he had been approached by a number of different people who already had trusts as part of an estate planning program that had been set up for them years earlier, and they were inquiring about the necessity of updating their estate plans and programs.

We talked about how recent law changes can affect trusts and estate plans that were prepared just a few years ago, and we talked about - of course - how families often have a change in circumstances which can sometimes require that old estate plans be thrown out the window.

The following are several of the "I already have a trust" situations I've seen in recent weeks:

The "Pre-Portability" Trust. Trusts drafted and implemented about three or more years ago required complicated estate tax planning provisions which made things complicated when the first spouse dies. These trusts required that all or a portion of the revocable trust become irrevocable upon the first death - all of this was required to keep the assets of the first spouse to die from being lumped into the estate of the surviving spouse. With new portability provisions in our federal estate tax - made permanent in January, 2013, it is often no longer necessary to have all of these complications in the legal documents. Married couples are now permitted to exempt $10.9 million of assets from estate tax - even without the creation of multiple trusts upon the death of the first spouse. Bottom line - if you have a revocable trust that was customized for you prior to 2013, it may be necessary to restate your trust - in order to make things easier for your family when you die.

The "I Hoped My Old Trust Protected Me From Nursing Home" Trust. We see many people who set up revocable living trusts 5, 10, 15 years ago. The primary purpose of establishing the trust was to avoid probate. Perhaps they set up their trust when they were 55 years old. Now the couple is 70 years old and they are worried that nursing home expenses may deplete their estate. They always tell me that years ago when they set up their trust, they did not address the potential for nursing home poverty. Because their concerns now have changed, it is likely necessary to ditch the old trust in favor of a new trust that would not only avoid probate, but would protect the home, property, and life savings from nursing home depletion. Bottom Line - a common theme these days - you may not be crazy about starting over with your estate planning, but it beats the heck out of the alternative of losing everything you've worked for because you were too stubborn to visit with an estate planning lawyer more than once during your lifetime.

The "I moved here from another state" trust. We see folks all the time that have moved to one state after creating trusts and other estate planning documents in another state. If you create estate planning documents in one state - and then move permanently to another state - you should have your estate plan reviewed and re-done in that other state. While your previous documents may still be valid, complications can occur if you die and you have a Last Will (also called "Pour-Over Will") from another state. It's more complicated to probate an out of state Will. Also, if you moved into another state and purchased a residence, you better make sure that your new residence is titled in the name of your trust. Many folks who move to another state neglect to title their new residence in the name of their trust - requiring a probate (or two probates for the married couple).

The "I want to make some changes" trust. I met with a couple recently. When they created their original trust, their children were minors, and the couple designated their parents as having all of the positions of authority. Now the children are grown, the parents are frail, and major changes are necessary. Rather than keep the existing trust and make a ton of amendments to an old trust, it's cleaner to "Restate" the old trust and create a brand new "Restated" trust.

Due to constant law changes, changes to family situations, and changing trends, estate planning can never be a "one-shot deal." You can't just "set it and forget it". Would you abstain from going to the doctor because you "already did that once several years back"? Would you bypass the dentist because you "did that already 15 years ago"? Only go to the car mechanic once because you see no need to "pay him twice"?

These days you need a long-standing trusting relationship with an estate planning attorney that can guide you and your family through the estate planning landscape as you and your family mature, and as lawmakers annually (at least) tinker or make wholesale changes to our legal, tax, and financial world.