Estate Planning Is For Everyone: 10 Non-Tax Reasons To Plan


by Dan Pape

dpape@mcgrathnorth.com
(402) 341-3070

With the newly-enacted federal estate tax laws, which allow married couples to pass up to $22,800,000 in value to their heirs in 2019 free of the federal estate tax ($11,400,000 for single individuals), many people have the misconception that they do not need to do any estate planning. However, apart from tax planning, the main reasons for estate planning exist now as much as ever. This article will discuss 10 non-tax reasons to implement an estate plan.

1. Distribute Your Assets in Accordance With Your Intentions

The main reason many people set up an estate plan is to make sure their hard-earned assets are distributed in accordance with their intentions. Regardless of whether you have substantial or minimal assets, you have the right to set forth terms for the disposition of your assets to your desired heirs in accordance with your intentions.

Without a Will or a Trust, the intestacy laws of your resident state at death will determine the disposition of your property based on your family circumstances at death and whether you are single or married. For example, if you are married with two children in Nebraska and die with all your property titled in your individual name (no joint ownership) and without a Will or Trust, your property will pass as follows in accordance with Nebraska’s intestacy laws: (a) $100,000 plus 1/2 of your remaining assets outright to your spouse, and (b) the balance of your assets outright to your children. Is this your intention if you are in this circumstance? If you have a child that just turned 19 years old, do you want the child to inherit their share outright to use in accordance with the child’s sole unfettered discretion (e.g., cars, vacations, shopping, parties), and even if it changes your child’s decision to go to school or pursue a career? I would not count on the statutes of your resident state to carry out your exact intentions for your spouse, children, grandchildren, friends and/or charities if you do not set forth your intentions in writing in a valid, legal document.

By establishing a valid, legal Will or a Trust, you may determine your heirs, the amount of property to pass to each, and whether they should inherit outright or in trust. The potential terms for disposing of your assets to your heirs are endless, including (a) outright bequests, (b) staggered distributions (e.g., distribute 1/3 of a beneficiary’s inheritance when the beneficiary reaches age 25 years; 1/2 of the balance at age 30 years; and the remaining balance at age 35 years), or (c) lifetime trusts. You may also set up different disposition terms for each of your beneficiaries depending on each beneficiary’s responsibility level, personality, age, etc.

2. Avoid Probate by Planning With a Living Trust

Many people first call an estate plan attorney after witnessing a probate of a family member’s or friend’s estate that drags out for many months with family fighting and costly legal fees. Some probates result in family conflict that is never overcome by the family, and all probates create additional legal fees.

In Nebraska, if you have approximately $50,000 of personal property or real estate titled in your individual name at death, your estate will go through the court process known as “probate.” In Iowa, the threshold is also $50,000. Accordingly, if you own real estate and do not implement an estate plan or only implement a Will (versus a Living Trust), you are almost guaranteed a probate at death, if you are single, or on the death of the survivor of a married couple.

A Will is better than nothing because it sets forth the terms to dispose of your assets so that your resident state’s default rules do not control the disposition of your estate. However, since you cannot title your property in a “Will”, you generally end up in probate because you die with assets above the threshold amount in your individual name.

Our practice at McGrath North utilizes planning with a Living Trust. With a Living Trust, you can title your property in your Living Trust during your life. At death, the Trust is viewed as owning your property (and not you); thus, the Living Trust can avoid the probate process. During your life, you don’t give up any control over the assets you transfer to your Living Trust. Instead, you (as Trustee of your Living Trust) continue to purchase, sell, hold, exchange, rent, operate and manage your Living Trust assets (the same as if held in your individual name). With a Living Trust, all of your income (with respect to the property held by your Living Trust) continues to be reported on your individual or joint Form 1040 (U.S. Individual Income Tax Return), as applicable, without any reference to the Living Trust, and the Living Trust does not file its own income tax return.

Therefore, by stating the terms for disposing of your assets in a Living Trust instead of a Will, and re-titling your assets in your Living Trust or designating the Living Trust as the beneficiary of certain of your assets, as applicable, you may avoid the probate process.

Avoiding the probate process is especially critical if you have real estate in several states. For example, if you only have a Will and die with real estate in Nebraska, Iowa and Arizona titled in your individual name, you will cause a costly probate in Nebraska, Iowa and Arizona at your death, all of which could be avoided through planning with a Living Trust.

With small estates, it is equally important to set up a Living Trust to help ensure the assets that remain are not used up for legal fees, probate costs and family fighting.

3. Name a Guardian for Minor Children

With a Will, you may name the Guardian (of your choice) to care for your minor children in the event of your death. Without a Will, a court will select the Guardian for your minor children.  Do you trust a court to pick the right family member to raise your children? Will the court know which family member has views most similar to you in terms of religion, education, work ethic, family and charitable values?

4. Name an Agent for Financial Affairs and Health Care Decisions During Life

Millions of people suffer from Alzheimer’s disease, strokes, heart attacks and other illnesses or accidents that incapacitate them during life. In fact, you likely know someone who has needed help managing their affairs after becoming ill.

By implementing a Financial Power of Attorney, you may name the Agent (of your choice) to manage your assets and financial affairs in the event of your incompetency. If you don’t have a Financial Power of Attorney, a court will determine the Conservator to make your financial decisions through a costly court process.

With a Health Care Directive/Power of Attorney, you may name the Agent (of your choice) to make health care decisions for you in the event of your incapacity. You can also make clear that you don’t want to be kept alive in certain circumstances (e.g., brain dead or irreversible coma). Without a Health Care Directive/Power of Attorney, a court will determine the Guardian to make your health care decisions through a costly court process.

5. Preserve Your Assets for Your Children

Implementing an estate plan that passes all of your assets to your spouse may not be the right decision. If your spouse remarries or has additional children after your death, are you sure your assets will end up going to your children after your spouse’s death? With second and third marriages, children from several marriages and blended families, it is very important to implement an estate plan to carry out your intentions and to help ensure family harmony after you are gone.

You can help preserve your assets for your children by setting up a Living Trust that is available to support your surviving spouse and your children during the surviving spouse’s life, but that passes all of your remaining assets to your children on the surviving spouse’s death. Alternatively, depending on the ages and circumstances of your children at your death, your Living Trust could distribute part of your assets to your surviving spouse and part to your children at death.

6. Ensure Special Needs Children Will Be Protected

If you have a special needs child, you may establish a “special needs trust” for the child within your estate plan. With a properly-designed special needs trust, the child should remain eligible to receive government benefits for the child’s basic needs and health costs, while the special needs trust may pay for items not covered by the government (e.g., travel, entertainment, presents, dental and medical costs in excess of the government benefits, magazines, etc.). A special needs trust can also help prevent outsiders from taking advantage of the good nature of your special needs child.

If you pass assets directly to a special needs child, the child’s inherited assets will count as a resource and will likely disqualify the child for government assistance until the child spends the assets. In addition, a court appointed Conservator may be necessary to manage the assets owned by such child.

7. Pass Assets to Your Significant Other in a Non-Traditional Relationship

If you are in an unwed, committed relationship, without an estate plan, you may leave your significant other without anything at your death and your closest biological heirs may receive all of your assets. In the event of your incapacity during life, your biological heirs (and not your significant other) may be granted control of your assets through  Guardianship/Conservatorship hearings in court. However, by implementing an estate plan, you can help ensure that your assets will pass to your significant other and family members in the desired amounts and that your significant other will make your health care and financial decisions, not your biological heirs, if you are incompetent.

8. Plan for Succession of Your Business

When family businesses are involved, often one or more of your children will be involved in the family business. At death, you may want to pass the family business to the children working in the business and other assets to your other children. However, if you don’t state your intentions in an estate plan, all of your children could inherit equally in the family business and this may cause hard feelings for the children who have spent their lives working in the business and now find themselves in ownership with their siblings who have different business goals or want to sell the business.

9. Minimize Fighting & Stress for Your Heirs

Many people don’t meet with an attorney about estate planning because they believe that estate planning will be too cumbersome, time-consuming or expensive.  In my experience, those people who opt “not to plan” leave a much more costly, time-consuming and stressful mess for their heirs to deal with, and at the most unfortunate time, when their heirs are grieving.

When there is no estate plan in place and the decedent has told certain beneficiaries they can have certain assets, the family fights that result are often never repaired. You can help keep peace in your family by setting up a detailed estate plan to clearly state your intentions and to carry out your discussions with your children or beneficiaries.

Many family fights occur over the decedent’s personal items and belongings that have sentimental value so make sure your intentions are clear on these items.

If you have made gifts to certain children during life, you can help equalize the overall gifts and bequests to your children through an equalization clause in your estate plan to help avoid or minimize fights.

Your estate plan can specify whether any adopted or step children or grandchildren are included as your heirs to avoid any confusion.

These are only a few of many reasons why families fight after someone dies. You can help reduce the amount of fighting and stress for your family by implementing an estate plan with the help of an experienced estate planning attorney, such as a member of the McGrath North Tax Group.

10. Carry Out Charitable Intentions

If you want to bequeath part of your assets to charities at death, your intentions will not be carried out unless you set forth charitable beneficiaries in your estate plan, or complete the proper beneficiary form or other document to pass the desired amount to charities at death.

It is often said that failing to plan is planning to fail. This is certainly true in estate planning. By failing to properly plan for your estate, you will likely not achieve your estate planning goals. You almost certainly will leave your heirs with additional administrative hurdles to carry out your estate – at a time when they will be mourning your passing. The time for action and planning is now. Contact a member of the McGrath North Tax Group to create your estate plan or make needed updates to your existing plan.

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