Business “succession planning” and estate planning are quite similar adventures. On a personal level, a typical husband and wife estate planning takes the following form:
This will get you some information to help you decide how to set up your estate plan. This treatment is for a married couple but applies to an individual with modifications.
I. General Estate and Gift Tax Law.
For today’s purposes, the estate tax exemption as of 2022 is $12,060,000. That is doubled for a married couple with the right kind of joint estate planning trust. With proper provisions in a joint Trust, you can protect $24,120,000 against any federal estate taxes. There are no Missouri estate or inheritance taxes. When the exemption was far lower about a decade or so ago, it was common to require two separate trusts for a married couple and to divide all assets between the two so as to take advantage of the exemption law. However, the modern statute now allows a joint trust for all assets of a husband and wife, avoiding the cumbersome and complicated two- trust procedure.
The exemption amount is of course subject to the changing composition and decisions of the U.S. Congress.
II. IRAs and Retirement Plans
These are usually considered outside your estate plan documents. This is because you were able to set aside money in IRA’s and retirement plans without any income tax. Once they are taken out or given to anyone except each other, there will be income tax. Therefore, you often do not making any changes to ownership or beneficiaries. However, to delay ownership to beneficiaries, it may be necessary to transfer them to the trust as a contingent beneficiary. The Trust will have a provision to reduce the tax burden and there are ways for beneficiaries to obtain their distributions at lower tax rates.
II. Estate Plan Documents
— Living Will
— Medical Durable Power of Attorney
— Revocable Trust
– Financial Powers of Attorney
– Certification of Trust
- Revocable Trust. You can each simply have a Will, but you first should consider a trust. The cost is not much greater than just a Will since the provisions would be similar. If you speak with an attorney who says the fees will be $3,000 – $5,000 and maybe higher, you are in the wrong law office. The plan documents we prepare are like that insurance commercial that says you pay only for what you need.
A “living trust” is also called a “revocable trust,” or “grantor trust.” It is typically the primary estate planning document. First, using a Trust avoids probate and its delays and costs. Secondly, and just as importantly, it also provides for managing a married couples affairs if both become disabled. That is what too many financial advisors ignore by recommending merely joint accounts. Just putting everything in joint names on your accounts would protect you if only one of you becomes disabled, not both, and does not solve the financial issues for the survivor. After the trust is signed, you then transfer title or ownership to all your assets except retirement accounts into the name of the trust. This includes, real estate, bank accounts, cars, life insurance policies, safe deposit box, and any investment accounts. It may appear burdensome, but the companies managing each item are familiar with what has to be done for trusts. Once the documents are signed, we provide a “to-do” list that gives you step-by-step instructions for each asset and we are available to facilitate the transfers if you want.
Even if you parties become disabled or die, the Trust does neither. A husband and wife are both the Trustees, and the Trust specifies that either one can act for the Trust.** And you name a successor Trustee to both of you.. On the death of one of you, the other continues to manage the Trust for all financial affairs. On the death of the survivor, the Trust still exists and your assets in the Trust are then distributed to whomever you want, in whatever shares you want, and at whatever intervals you want, without needing an attorney and without probate. These are the same provisions you would have made in only a Will.
**Caution concerning Bank of America. Recent experience with this mega-bank has been that their legal department refused to recognize trust language authorizing only one party. They did so even with the knowledge that the husband’s wife was mentally incompetent and in a nursing home. Bank of America would not allow her husband to act for the Trust, instead insisting she had to come into the bank. Since then we recommend our clients avoid using Bank of America for any reason.
You would be your own initial trustees to administer the assets. You are merely “moving your asset from your right pocket to your left pocket.” You will notice no change in how you manage your daily financial affairs.
A Will governs assets in your name alone on your death. However, your assets are still at risk if you both husband and wife, or the survivor, become disabled or should die within 90 days of each other. A court then must appoint someone to take care of all financial affairs. (A trust avoids that). On your death, the person you name in charge has to hire an attorney for the probate administration, review claims, file accountings through Probate Court to carry out the Will and handle any legal issues that arise. Probate y y g takes a minimum of six months and extra attorneys fees. There is a statutory scale but it works out to a minimum of 3% of the total. So even if total assets are only $300,000, this means wasting about $9,000.00 by just using Wills. Again, creating a trust eliminates all those issues. By transferring your assets into your own trust, you “own” nothing on the date of your death. The successor Trustee you name then takes charge of the Trust and carries out your wishes.
As a side matter, even if you use a Trust, we still draft a simple Will. The purpose of that Will is to take care of any assets that for some reason do not get transferred into the trust. It is commonly called a “pour-over” Will because all it says is that any assets still in your name will “pour over” into the Trust anyway. Then the terms of the trust take over. Probate is still required but it is done by an Affidavit and takes only about a month if there are under $40,000 in assets in your name and not owned by the trust at that time. If all your assets are by then in the Trust, the Will is thrown away.
3. Medical Power of Attorney.
This instrument authorizes an agent, typically each other, to make medical decisions on your behalf in the event you are unconscious or unable to do so. In addition, you name a successor or back-up person if the first one is unavailable.
4. Living Will.
A Living Will expresses your wishes as to avoid certain medical procedures if you have an imminent terminal condition, e.g. breathing tubes, feeding tubes, resuscitation. It does not require those actions, only indicates you want no procedure that merely prolongs the dying process.
The first three items above are legal decisions. The Living Will, however, is a personal and not a legal decision. There is no extra cost and I can easily prepare it for you if you want.
5. Financial Durable Power of Attorney.
This document allows each or another party you designate to manage financial matters not governed by the Trust – retirement accounts, medical insurance etc. in the event the party is unavailable or unable to communicate. This is necessary when dealing with medical insurance, credit card companies, IRS accounts, and others who normally will deal only with the party on the account,.
6. Certification of Trust.
There are times when an institution such as an investment advisory or title company needs verification that the trust is in full force, who the trustees are and a recitation of authority of the trust separate from the Trust itself.
7. Summary of Decisions
So your list of decisions to be made is:
a. Is there a charitable bequest, or more, you would make?
b. Who would be the successor Trustee to you.
c. Who would be the Personal Representative if probate is necessarily (formerly called “executor”).
d. At what age would children, grandchildren or other beneficiaries get a share? You can delay distributions for lump sums or installments to any age(s) you want. This may all appear to require a long time to work out, but actually it goes pretty smoothly once you work through each question.
Review of this Article does not create an attorney-client relationship. The law and its application by the courts is constantly evolving and changing. As with all articles of general interest, the discussion of the law is for general informational purposes, is in general summary form, is not to be taken as a definitive guide, and should not be relied upon to determine all fact situations. Each set of facts must be examined separately with the current case and statutory law analyzed and applied accordingly.