Sunday, November 26, 2006

Pass the Turkey and Your Inheritance

During this time of season, families are gathering together and talking about sports, kids, families, work and other topics. While estate planning, wills, and death aren't exactly raucous discussion topics, it is a good opportunity to go over some topics with your families, whether it be your parents or your adult children. Communication over the plans that have been made or will be made is important in keeping a harmonious family. Take this occasion to be thankful for the family that you have and tell them that you care enough to make plans to make transitions as easy as possible. Whether it is a discussion over who and why you picked a particular person as a guardian for your children or why you are leaving a particular property to someone, you can potentially help avoid disputes at a later point.

Verbalizing your intentions and plans will reinforce the written documentation that you, hopefully, have in place. Without this communication, you just have words on paper that someone else can potentially interpret in different ways. "Why did dad do that to me? Was he still upset over that broken window from the third grade?" "I bet my sister made him write his will that way. Honey, what's the name of that lawyer?"

Hopefully you have a close and understanding family that never fights. Even so, isn't it better that you tell your loved-ones how much you care and what you've done? And if you don't have a "Cleaver-esque" family like the other 99% of families, setting the plan out makes even more sense. So when you get that lull in the conversation this season, take that first step. Chances are you'll be glad you did...and so will your family.

Monday, November 20, 2006

To Revoke or Not Revoke...That is the Question

While a revocable trust can be changed after it is created, an irrevocable trust is a trust that cannot be changed or amended after it is created. In other words, the terms are "written in stone". A careful drafter of an irrevocable trust will be able to implement some provisions which provide for some flexibility in the future, but there are limits as to how much can change and you will lose control over the trust assets, generally speaking.

So why would you create an irrevocable trust if you can't change anything? People and plans change, right? A properly drafted and operated irrevocable trust will be excluded from your taxable estate. Thus, for example, you could purchase a large life insurance policy to be owned by the trust, have the death benefits paid to the trust and then to your selected beneficiaries. While normally life insurance proceeds are included in a taxable estate, by having the irrevocable trust own the policy, those proceeds are fully excluded from your taxable estate and pass to your beneficiaries free of estate tax.

Other assets besides life insurance can be transferred into an irrevocable trust, although you'll have to consider the impact of gift taxes on such a transfer with your advisor.

Sunday, November 12, 2006

Multi-Uses of Life Insurance in the Estate Plan

Life insurance can be an important part of your estate plan and can be utilized in many different ways. For example, if your estate is subject to estate tax, life insurance provides liquidity for the payment of taxes without necessarily having to sell your assets if you don't have the cash available.

Life insurance can also be helpful if you have a small business with another partner and you want to create cash for either the business or your partner to purchase your share of the business, such as through a buy-sell agreement, which then provides cash for your family. Life insurance with a buy-sell agreement enables the business to hopefully continue.

And, of course, life insurance provides income replacement and cash for your spouse and kids in the event of your death for payment of bills and maintenance of a lifestyle.

A good estate plan is more than just a will or a trust, but also may include life insurance for various purposes.

Tuesday, November 07, 2006

Power of Attorney

"Okay, I'm lying in a hospital bed, comotose, hooked up to a machine. Who's going to pay my bills, get my mail, file tax returns, cancel my subscription to Cats'R'Us magazine, . . ."

Good question. Have you made adequate plans? Estate planning is more than just planning what happens to your assets at your death, but also what happens to your assets during your disability. That planning should include executing a power of attorney document.

A General Power of Attorney form authorizes an individual (called the attorney-in-fact, but they don't have to be an attorney, thankfully) to act on your behalf. There are different situations when you may want this. For example, you are going to be out of town but you want someone to sign documents on your behalf in your absence. A power of attorney (POA) form can handle that simple assignment.

Or, you can have a Power of Attorney authority that "springs" into existence only when you are disabled, as determined by your physician. With a "springing power of attorney", your attorney-in-fact only has authority when you are unable to act due to a disability. Until that point, they don't have any authority.

Upon your death (which we hope doesn't happen soon), all authority under the POA is extinguished and your attorney-in-fact no longer has any ability to act. What happens in that scenario is a topic for another day.

Getting a will or trust executed is an important part of the estate planning process, but don't forget to cover all the bases and have a POA executed.