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Hess Law Group

The Modern Estate Plan

Covering your assets!

Many have read the headlines: well-to-do individuals stripped of their fortunes over drawn-out legal battles. From multi-million dollar divorce settlements to nasty custody battles, unexpected trouble is out there. While the press can make things seem worse than they really appear, at the end of the day, what most people do not realize is much of this could have been avoided. How? If these individuals had prepared proper estate plans.

Estate planning has come a long way over the past few decades. Estate planning is no longer just about who will receive your album collection when you pass. Modern estate planning also concerns asset protection, caring for children, tax and special needs planning, and trust administration while one is still alive. Just as financial planners strive to grow an individual’s portfolio and family law attorneys strive to draft iron-clad prenuptial agreements, estate planners strive to secure an individual’s assets from outsiders, to ensure everything you have worked so hard for is there for generations to come.

Asset Protection Planning

Many individuals have not gotten to where they are because they played it safe. In fact, most would admit they have taken a lot of risks, whether in the stock market or otherwise. While some risks pay off handsomely, others do not. One risk most people do not consider, however, is how unprotected are my assets in the event of a misfortune?

Asset protection planning has become a major focus in the modern estate plan. Whether the problem arises from malpractice, a car accident, product liability, divorce or a civil lawsuit, asset protection planning helps to ensure that if/when an issue arises, a prepared individual’s assets are protected from their potential creditors. Through the use of specially designed trusts, limited liability companies and lifetime gifts, an estate plan can protect your assets from overzealous creditors.

An important item to note, timing is crucial when considering asset protection planning. Planning to protect your assets prior to an event occurring is just that, planning. Asset protection planning after a claim or lawsuit arises is generally considered fraud. Fraudulent transfers and conveyances can and will be undone by a court of competent jurisdiction, leaving those individuals in the same place, if not worse off, than they were before the claim or lawsuit arose.

Family Planning

Whether you have a family now or plan to have one in the future, estate planning can play a crucial role in how your family is treated in the future. If a mother and father are unable to care for their child, who would step in? Should a judge who has never met the child decide? Should the same person raising the child have complete control over the assets left for the child? Through the use of wills and trusts, parents can select potential guardians and conservators for their children in the unlikely event they are unable to care for them.

What if husband and wife divorce, how can they be sure the child support is going to their child and not their ex? If husband and wife divorce, should their spouse get half of the other spouse’s family business? What if husband and wife give their child a percentage of the family business and the child divorces, should the child’s spouse receive half the child’s share in the family business?

These are just some of questions and concerns many people have. The answers to these questions are simple. What would you like to see happen? A spouse can certainly pass half of a family business to their spouse, or they could draft an estate plan to ensure their family keeps complete control of the family business. Also, the use of family limited liability companies, cross-purchase agreements, buy-sell agreements, and other strategies can help preserve the interest in the family business, ensuring the business stays in the family.

Tax Planning

Since the government has raised the estate tax exemption to $5,000,000.00, many no longer have to worry about gifting and transferring assets to meet the exemption. To those fortunate enough to have accumulated an estate over $5,000,000.00 ($10,000,000.00 if married), however, the danger of paying an exorbitant amount of tax upon death is still there. But paying the tax is not the only answer. Through the use of careful tax-planning strategies, IDGTs, inter-spousal transfers, gifting and charitable donations, even the wealthiest of estates can minimize, if not avoid, the 40% federal estate tax.

For some, however, losing control of their assets now is not their ideal situation. For others, handing down a small fortune to an irresponsible child may not be the benefit they are looking for. For many, watching their inheritance slip away in a check to Uncle Sam to cover a hefty tax bill is difficult to watch, especially when it could have been avoided (just ask the Wrigley and Davis families!). This is why estate plans are not drafted with a “One-size-fits-all” approach. Estate planners will take each individual’s concerns into consideration, the law will not. So why wait for the law to tell you or your loved ones what to do with your money?

Special Needs Planning

Having a child or loved one with special needs is a full-time responsibility. Many people wonder, who will take over the responsibility when I pass. Perhaps another family member or a nursing home? With an estate plan, one can rest assured their loved one will receive the proper care they need for as long as they need it. Through the use of ILITs, Special Needs Trusts, Support and Maintenance Trusts, and other strategically drafted documents, a person can plan today for the wellbeing of themselves and others tomorrow.

It should also be noted, leaving gifts to special needs loved ones is very kind in thought, but many do not realize the gift, if not properly given, can create havoc for the recipient. Many special needs individuals receive government benefits like Medicaid or social security. Special need individuals rely on these benefits for their well-being and in order to afford life. When they receive a large gift or inheritance, however, the benefits can be jeopardized. Of course the giver didn’t mean any harm, but the government agency providing the benefit can force the special needs individual to spend down the gift or inheritance before they will continue to pay out the benefit. This can all be avoided by not giving the gift to the person, but rather holding the gift in trust for the person. Holding the gift or inheritance in trust will allow the special needs individual to continue to receive their benefits while the gift or inheritance is still available for any additional amenities and/or surprise expenses their government benefits do not cover. I believe most would agree, this is a much better result.

These are just some of the many advantages of estate planning. Please keep in mind, this discussion is a general overview of estate planning. While some of the situations and discussions may seem to have close relevance to your current situation, this discussion is in no way intended to provide legal advice to your exact situation. The information presented is to help you get an understanding of estate planning and to seek legal advice for your individual situation. So don’t delay, get your estate planning done today!