The Southward Group

Southern California and Los Angeles Real Estate

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Five Estate Plan actions to take in light of the new tax law!

Some people put off their estate planning pending passage of the 2017 tax law in case there were changes in the law that would affect their planning choices.

The new tax law increases the amount that each person may pass on free of federal estate tax from $5.49 million to $11.2 million. While this is great news for the super wealthy, for the 99.5 percent of the rest of us, the federal estate tax became a non-issue in 2010 when the exemption from federal estate tax was increased to $5 million per person.

Estate planning has always been about more than tax planning and the reasons to make sure that you have a comprehensively drafted, up-to-date estate plan remain the same as they were before the tax law changed. These include planning for the possibility that you may become incapacitated, making sure that your family is taken care of when you are no longer around to do so, protecting your children’s inheritance from the reach of their creditors, making sure minor children are properly provided for, and reducing the time and costs often associated with estate settlement.

Here are five actions to take to make sure that your estate plan accomplishes the goals for which it was created.

1. Make sure your beneficiary designations are up to date. Many a well-drafted estate plan has been undone by failed beneficiary designations. Beneficiary designations are most commonly used for retirement accounts like IRAs and 401Ks and for life insurance. However, beneficiaries may also be designated on annuities, mutual funds, investment accounts and even bank accounts. A beneficiary designation is a form typically supplied by the company or financial institution and is completed by the owner of the account or policy. The form designates the person or persons who will own the account or receive the life insurance proceeds when the original owner dies. The problems with beneficiary designation forms arise in a variety of ways, from not having any beneficiary named, to having the wrong beneficiary named, to designating beneficiaries that are inconsistent with the rest of your estate plan. This can happen because the form was never updated when the first named beneficiary passed away, or because the owner did not complete a new beneficiary designation form after creating a trust. It can even happen when financial institutions merge or one company is acquired by another and paperwork goes missing in the transition. For many people, their retirement accounts and their life insurance are their most valuable assets. Making sure that beneficiaries are properly designated on these assets is vital in making sure your estate plan works as intended.

2. Consider whether you should do estate tax planning to reduce the Massachusetts estate tax. Even though few people need to be concerned about the federal estate tax, Massachusetts residents, and non-residents who own real estate in Massachusetts, should be aware that Massachusetts has its own estate tax system that imposes a tax on estates valued in excess of $1 million. For married couples who have more than $1 million, basic estate tax planning can save their families $100,000 or more. Unmarried people with estates over $1 million may be able to reduce or eliminate the Massachusetts estate tax by using an Irrevocable Life Insurance Trust to own life insurance or doing other planning.

3. Update your estate plan to address changes that have occurred in your family or financial situation or in the law. Think back to five years ago and consider what has changed since then. Everyone in your life is five years older – does that passage of time mean that some people, like children or nieces or nephews, are now better choices to serve in fiduciary roles such as Personal Representative or attorney-in- fact under your Power of Attorney than the people you named five years ago? Have your fiduciaries moved away or perhaps you have just drifted apart and these folks are no longer good choices. What about your financial situation? Has that changed in the past five years? Perhaps you received an inheritance and your estate is now much larger than it was when you created your estate plan. Perhaps you have retired and now have concerns such as long-term care planning that you were not worried about when you were younger. In 2012, Massachusetts enacted a brand new probate law and a brand new trust law. If you haven’t met with your estate planning attorney to review your estate plan and the impact these changes in the law may have had on your plan, it’s time to do so.

4. If you have created one or more Trusts, make sure your Trusts are properly funded. Creating a trust as part of an estate plan can accomplish many goals. One of the primary reasons for creating a trust is probate avoidance. Probate is the court process of changing the title on assets owned by a deceased person so that the assets can be distributed to the heirs or devisees. Avoiding probate is desirable because probate can take a long time, it is expensive, it means a loss of privacy and it can be an aggravating process. A trust is a great way to pass your estate to your intended beneficiaries outside of probate but this only works if the assets are re-titled in the name of the trust during lifetime.

5. Learn about your options for long-term care planning and choose the one that is best for you. Long-term care is an area of concern because the cost is very high and because many people want to avoid becoming a resident of a nursing home. Meeting with an experienced estate planning attorney with knowledge of elder law to educate yourself about long-term care planning options is a must for anyone over the age of 65.

Estate planning means taking steps to make sure you and your family are taken care of in the event of incapacity or death. While tax planning is certainly a component of estate planning it is by no means the only reason. If you have not created your estate plan or if it has been awhile since you last reviewed your plan, resolve to make 2018 the year you take care of this important business.


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Attorney Suzanne R. Sayward

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