You need a will. Plain and simple. But even that is not enough, you should also have a revocable living trust. A revocable trust with an incapacity clause is a document that spells out how you want your financial life managed if you become incapable of making the moves yourself. When you die, the trust will be the template for how you want your finances handled and ultimately distributed. If you happen to die when your child is a minor, this will take care of their well-being and allow your family to avoid going through probate guardianship. These are documents that you need today to protect your tomorrows.
Medical/Financial Powers of Attorney
You must have a durable power of attorney if you want someone to handle your affairs in the event you become incapacitated. These documents must be executed before your incapacity.
With these documents, you appoint an agent (typically your spouse or another family member or a trusted friend) to act on your behalf if you aren’t able to make decisions for yourself.
The POA for Health Care nominates an advocate for you and outlines your wishes regarding how doctors should proceed if you are severely ill and need life-support.
The person you nominate under your Financial POA, called your attorney-in-fact, would have the ability to handle your financial affairs in the event that you are incapacitated/disabled.
Life Insurance Trusts
An irrevocable trust is one that is set up so the person establishing it, the grantor, has no right to change the terms of the trust, to benefit from it personally or to terminate it. By surrendering control of property in the trust, the grantor helps ensure that the value of the trust property (life insurance proceeds in this case) will escape inclusion in the estate.
Any type of trust, which is a legal entity created under the laws of a certain state, involves three parties:
1. The grantor, who establishes and funds the trust.
2. The trustee, who manages and administers the trust.
3. The beneficiary, who receives the funds and its benefits
Family Limited Liability Companies and Gifting programs
As we work with client on their estate planning and watch the tax changes, we may need to utilize additional estate planning tools. Many different estate planning strategies can be used to eliminate or, at the very least, significantly reduce estate taxes, ensuring a family’s wealth is passed on to the next generation. One such strategy involves a Family Limited Liability Company wherein the older-generation owners of business or investment assets seek to fix the estate tax values of their interests at current levels and to pass on future growth in the value of the business or investment assets to a younger generation without incurring a transfer tax on the growth element. The future growth then can be passed to the younger generation free of estate taxes.
All Members have limited liability for the business’s debts. An LLC can be structured as a “member-managed” entity, wherein all of the owners participate in management, similar to the partners in a general partnership. However, the LLC can also be formed as a “manager-managed” entity, wherein the owners who are also the managers (usually the parent(s)) control the business, while the owners who are not managers (usually the children) act in a capacity similar to limited partners. In short, the “manager-managed” LLC is well suited to accomplish this estate planning objective.
You can transfer ownership interests, in the form of non-voting non-manager interests, to the children without giving up control of the business. By doing this, we can get some of the value of the transferred asset or business out of the client’s gross estate.
Retirement Asset Trusts
At your passing there are advantages of stretching retirement assets over your beneficiary’s life times as opposed to taking a lump sum and liquidating the retirement account. An adult beneficiary can stretch the retirement account, but will they actually do it? What typically happens is after you pass away is that your beneficiary or trustee if you have a trust is going to liquidate all of your assets and put them all into one account to make is easier for themselves to follow this set of directions that you have left behind. That is not what is best for pretax dollars. So the goal is to make the stretch happen. We can force your children down the right path financially, essentially forcing them to do what is best for them in the long run. A Retirement Asset Trust (RAT) is very similar to a normal Revocable Trust that you may already have in place. You still have the grantor, trustee, and beneficiaries. But what the RAT does is force the trustee to stretch (not cash in) the retirement account and allow this money to continue to grow tax deferred and your children or beneficiaries would receive the required minimum distributions each year. Your goal of making sure your beneficiaries elect to stretch out your retirement assets over your oldest beneficiary’s lifetime will be accomplished most effectively and most efficiently by taking advantage of the Retirement Asset Trust. This type of trust is not for everyone and it warrants significant planning among the client, the attorney, the financial advisor and the CPA and also incurs significant administration between the successor trustee, the attorney, the financial advisor and the CPA after a passing