ESTATE PLANNING IS FOR EVERYONE
By Brent Kinkade, Karnopp Petersen LLP
Most Americans are generally aware that they need to have an
estate plan, but – according to a recent nationwide
survey – most still do not even have a Will. One
common misconception is that there is no need for an estate
plan unless the estate is large or complex. In reality,
most of the reasons to plan apply to all estates, large or
small. Some issues you should consider:
1. Incompetency. What if you become
incompetent prior to your death? With a comprehensive
estate plan, you can pick the successor manager of your affairs
using a trust, power of attorney, or other tools. Without
an estate plan, expensive court intervention may be required in
order to appoint a fiduciary who will then be required to
annually report to the court.
2. Blended Families. In any second
or later marriage an estate plan is particularly
important. Without a plan, children from different
marriages may be treated very differently or even left out of
inheritance entirely, depending on how assets are titled.
With a plan, you can insure that your priorities will
prevail. For example, by using a marital trust you can
provide support for a surviving spouse and then, upon his or
her death, direct the disposition of the assets to the children
of a prior marriage.
3. Minor Children. If you have
minor children, a properly drafted estate plan will allow you
to nominate the guardian or guardians of your choice –
the single most important estate planning step parents can
take. Without an estate plan the courts will be forced to
designate a guardian without the benefit of your insight or the
knowledge of your preferences. In addition, your assets
will be distributed to minor children at their 18th birthday
unless your estate plan provides otherwise. With a plan,
you can designate a trustee to manage the estate’s assets
until your children reach an appropriate age that you
determine.
4. Special Needs Children. If you
have a child who qualifies for government benefits, those
benefits may be lost if the child receives an inheritance
outright. The inheritance itself may also be spent
improvidently if the child does not have the capacity to manage
the assets. However, a trust for such a child can hold
assets so that the child will remain qualified for government
benefits and have the benefit of appropriate management and
distribution. Similarly, if you have a child who
struggles with drug addiction, poor money management, or other
negative behaviors, you can tailor a trust that meets the needs
of that child – if you plan in advance.
5. Beneficiary Designations. If you
have life insurance, IRAs, annuities or other assets which
designate a beneficiary, your current beneficiary designation
may not effectively reflect your current wishes –
particularly if the beneficiary designation was made some time
ago. The rules and options relating to beneficiary
designations have undergone significant change in recent years
and will continue to do so. Your estate plan should
integrate your beneficiary designations with the overall plan
for all of your assets and ensure that you and your
beneficiaries can take maximum tax advantage under complex
distribution rules.
6. Business Transition. If you own
a business, your death may also spell the death of that
business if you neglect a business transition plan. With
a transition plan, you can help to ensure that the business
will either be transitioned to the appropriate family members
or be continued pending a sale so that its value can be
preserved for your family.
7. Probate and Probate Avoidance.
Without a plan, your estate will pass via intestacy, meaning,
in effect, that the State of Oregon will have written your Will
for you. If you plan your estate, you can decide who will
manage the estate, who will inherit it, and whether various
methods to avoid probate entirely are appropriate. For example,
a common method of avoiding probate is the creation of a
revocable trust that takes title to your assets prior to your
death. During your life you serve as your own
trustee. Upon your death, your successor trustee is able
to manage and distribute the assets per your wishes without
probate.
8. Taxes. For most estates, taxes
are not a concern. However, there is an Oregon
Inheritance Tax on estates above $1,000, 000 and a Federal
Estate Tax on estates above $2,000,000. The Federal
threshold is scheduled to increase to $3,500,000 in 2009 and
the Federal tax is scheduled for repeal in 2010.
Unfortunately, the repeal “sunsets” in 2011,
resulting in a new lower Federal threshold of $1,000,000
(unless Congress acts in the meantime). For both Oregon
and Federal tax, a married couple can fairly easily double the
amount they can leave to their heirs tax free – but only
with the appropriate estate planning.
Most estates, large or small, would greatly benefit from
intentional planning. At a minimum, every adult should
have a Will, Power of Attorney and Advance Directive to
Physicians (for medical decisions) – all of which you can
obtain at a cost far lower than the cost you or your family
will incur from failing to plan.
Brent Kinkade is the chair of the
Trusts & Estates department
at Karnopp Petersen LLP. His estate planning practice covers a
variety of matters including wills, trusts, probate, charitable planning, elder law,
estate tax planning, and general business law.