Value Drive Estate Planning

My approach to recommending estate planning solutions is to consider all the options available to accomplish the client’s objectives. Next, I balance the cost and complexity of more involved strategies against the risk of simpler approaches. The increase in the estate tax exemption means that some common strategies are no longer necessary for the average client. As an example, past practice was to create a life insurance trust to own a large insurance policy intended to provide for the family in the event that breadwinner passes away before the children are grown. Now the same result is achieved by adding a trust to the breadwinner’s will and the trust is named as beneficiary of the life insurance policy. This change lowers the cost and complexity of providing trust protection to life insurance proceeds. It also makes this strategy available to more families who could not justify the cost and complexity of a standalone life insurance trust.

The decision on whether or not to use trust planning for a married couple is affected by high estate tax exemptions. Those families using traditional trust planning to avoid Maryland and Federal Estate taxes no longer see the need for trust planning. However, there are many other reasons for revocable trust planning. The trust provides disability protection as a successor trustee can step in for the disabled person, make decisions about trust property, pay bills, and have more authority than an agent acting under a power of attorney. After the first spouse passes a family trust provides asset protection against creditors and insures that a portion of the couple’s assets will pass to their children and not end up in the hands of a future spouse. Additionally, a trust can be structured to keep assets in trust for children and grandchildren. The continuing trust may contain provisions to limit a child’s access to principal, allow for professional management of the funds, and keep the inheritance from becoming a marital asset in the event of a divorce. The cost of this control must be balanced by the cost of preparing a trust income tax return every year for the trust. Finally, a revocable trust avoids probate on most of the estate. Often there is a small estate for an automobile or refund of insurance premiums. The fees charged by the Register of Wills are avoided as well as the cost of complying with the detailed reports required by the Register’s Office. There will be expenses for trust administration offset by documenting the “stepped-up basis” of stocks and real property In sum, the percentage of families completing revocable trust planning has not changed significantly since the Federal Government raised the estate tax exemption to $5,000,000. However, the reasons for trust planning have changed driven primarily by the desire to protect the children’s inheritance.

Similarly, preserving family assets while planning for the possibility of needing extended skilled nursing care is often evaluated on costs and control factors. Ideally, a couple can afford to purchase a long term care policy or have a large IRA set aside to cover the cost of a nursing home. However, many families fail to buy long term at age when the costs are affordable. An alternate plan is to create an Irrevocable Trust for the benefit of your children when both spouses are still healthy. The gift to the trust must be reported on a Medical Assistance application if made within 5 years of the application. Giving up control of a portion of your assets when you are healthy makes economic sense assuming that you trust your children to provide for you should the need arise.