Estate Planning is About More Than Taxes

by Steve Hartnett 

The new tax law doubled the amount that can be passed free of federal estate taxation, at least through 2025. In 2018, an individual can pass $11.18 million free from federal estate taxation. But, estate planning was never just about estate taxation. The core of estate planning has always been about protecting your loved ones and the assets you leave them.

There are many different ways you can protect your loved ones. Here are a few ways, depending upon the needs of your loved ones:

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Situation 1: Your son is not good at making decisions with money. He typically spends more than he makes. Often, he’s taken advantage of by unscrupulous people. You fear his marriage may not be solid, either. It may make sense for you to leave his inheritance in a trust with someone else as trustee. That trustee could distribute assets to your son for your son’s needs. That way, the inheritance you leave your son wouldn’t be squandered. Further, the assets in the trust would be protected from being considered marital property subject to division upon divorce.

Situation 2: Your daughter is a successful physician. However, as an anesthesiologist, she has a high risk of lawsuits. She would like to protect any inheritance from her creditors. It makes sense for you to leave her inheritance in a trust with a third-party trustee and a completely discretionary standard to provide creditor protection for the inheritance you’ll leave her.

Situation 3: Your son has special needs. You leave his inheritance in a special trust which keeps the inheritance from disqualifying him from needs-tested benefits, such as Supplemental Security Income (SSI) and Medicaid. The inheritance could be utilized for uses for which there aren’t needs-tested benefits, such as vacations and specialized training. Rather than disqualifying your son from governmental benefits, the assets can now enrich your son’s life in ways the governmental benefits wouldn’t have provided.

Situation 4: You have a blended family. Your first spouse, with whom you had two children, died in a tragic accident. You remarried someone who had two kids of their own from a prior marriage. You have one child together with your second spouse. After your death, you may want to keep your assets in a trust to ensure your assets go as you want. That way, if your spouse remarries, you can be sure your assets cannot get diverted to other children or to your second spouse’s new spouse.

Privacy: If you die with assets in your individual name, those assets typically need to go through the probate process to pay your debts before passing to your intended heirs. However, the probate process is a very public process. Anyone, including nosy neighbors and unscrupulous salespeople can go to the probate court and see how much money you’ve left and to whom. There are ways to shield your heirs from the public probate process. One of the ways to ensure privacy is to place your assets in a Revocable Trust during your lifetime. At your death, the assets in the trust pass to your intended beneficiaries without the public probate process.

Certainly, for a wealthy individual, estate tax planning may be relevant. However, estate planning is about far more than just estate tax planning. It’s about protecting your loved ones in whatever way makes sense for them, including providing them privacy from the public probate process.