Claiming Financial Confidence: Estate Planning Primer

Financial confidence is based on protecting what you have built and creating confident future. Estate planning is a critical component of financial wellness. This Estate Planning Primer is designed to provide an overview of the estate planning basics, document overview, outline of issues for estate planning and helpful hints for getting started.

FRAMEWORK FOR YOUR ESTATE PLANNING

1.         TAKE INVENTORY OF YOUR ASSETS AND LIABILITIES

• real property – homes, land, commercial buildings, rental properties
• tangible property: vehicles, jewelry, artwork, collections, other significant assets
• financial accounts – bank accounts, cash equivalents (CDs) and other
• investment accounts - brokerage accounts, mutual funds, stocks, bonds, other securities
• retirement accounts – IRAs, 401(k) plans, other tax-advantage savings plans
• business interests – ownership interests in LLCs, LPs, corporations and other entities
• intangible property – intellectual property, patents, copyrights, trade secrets, goodwill
• digital assets – virtual currency, non-fungible tokens (NFTs), media files
• insurance policies – whole life, term, blended, convertible
• liabilities: mortgages, lines of credit, other debt
• foreign assets – ownership of financial assets, real estate, business interests or other assets in foreign jurisdictions

2.         DEFINE YOUR ESTATE PLANNING GOALS AND OBJECTIVES

• Work with wealth advisor on financial goals and action plans
• Meet with estate planning attorney
• Consider critical estate planning issues and define your goals. Goals may vary based on your individual situation: family, financial, other. You may have multiple goals, including the following:
• appoint guardians for your minor children
• avoid probate, minimize administrative costs, court and legal fees
• protect assets and preserve wealth
• mitigate transfer taxes (estate, gift, generation skipping transfer taxes)
• reduce income taxes (basis step up, Section 1202, SALT planning, other)
• address certain family dynamics and issues
• realize charitable goals and desires
• provide for the wellbeing of your loved ones
• provide for support and education of your children, grandchildren and loved ones
• take care of certain family members
• protect business interests
• provide for your own incapacity and management of affairs during incapacity

3.         EXECUTE ESTATE PLANNING DOCUMENTS

Estate planning documents may vary based on the jurisdiction you reside in and the estate planning specific to your needs. Estate planning may vary in complexity and may include various trusts and estate or gifting strategies. However, the standard documents generally include all of the following:

• Last Will and Testament
• Revocable Trust
• Durable Power of Attorney
• Medical Power of Attorney
• Declaration of Guardian
• Advance Healthcare Directive
• HIPAA Authorization
• Appointment of Agent to Control Disposition of Remains

Planning with trusts usually involves more advanced estate planning framework which can assist high net worth individuals, business owners, individuals with unique family circumstances. Examples of various trusts include:

• Revocable Living Trust
• Generation-Skipping Trust
• Irrevocable Life Insurance Trust (ILIT)
• Grantor Trusts and Intentionally Defective Grantor Trusts (IDGT)
• Charitable Trust
• Marital Trust (QTIP)
• Spousal Lifetime Access Trust (SLAT)
• Spendthrift Trust
• Special Needs Trust

4.         PUT YOUR FINANCIAL AND ESTATE PLAN INTO ACTION

• Communicate with your agents and representatives, update any designations and appointments in your estate planning documents, as needed
• Fund your trust(s), retitle all assets accordingly
• Update all beneficiary designations in your investment and retirement accounts
• Work with your estate planning attorney to implement your gifting strategies
• Discuss updates, plans and changes with your wealth advisor and estate planning attorney

5.         SPECIAL ISSUES TO CONSIDER

Every estate plan is specific to an individual’s needs. As you work on your individual estate plan, consider whether additional planning is required for any special circumstances, some of which are discussed below.

Income tax planning is essential for financial wellness. What type of income tax strategies are you currently utilizing?

• Have you discussed your income tax planning with your CPA or tax advisor?
• Do you utilize all available income tax benefits: bonus depreciation, personal or business deductions, retirement contributions, specific strategies (Augusta Rule, asset segregation, income deferral, bundling deductions, timing of income and deductions, tax loss harvesting), charitable giving, claiming credits, 529 plans, Roth conversions, and other.
• Do you have a wealth manager and an investment strategy? Have you discussed tax saving and wealth accumulation strategies with your wealth advisor?
• Do you own a closely held business, have you considered efficient tax planning for your business:
  1. planning with valuation discounts
  2. strategic donations of business interests to reduce tax liabilities
  3. donor advised funds
  4. charitable remainder trusts
• Are you charitably inclined and how involved you want to be with your charitable donations during your life and what legacy you would like to leave after your death?
• Is your trust the right trust for you and how does it help you accomplish your goals? Consider your unique circumstances: wealth accumulation, tax liabilities, blended family issues, special needs, asset protection, digital assets, business succession, life changes, and other issues.
• Differentiate between solid tax strategies vs. risky tax strategies promoted by aggressive advisors. If it sounds too good to be true, it is almost certainly an abusive tax avoidance scheme.
  • Common abusive techniques:
    1. monetized installment sales
    2. deferred sales trusts
    3. abusive syndicated conservation easements
    4. abusive micro-captive insurance

6.         BUSINESS OWNERS – PAY ATTENTION!

While these days everyone is a business owner, business owners with significant business assets should pay special attention to business succession planning and estate planning, which should be part of a comprehensive plan. Several points to consider:

• Work with a team of experts and have a comprehensive approach to planning: legal counsel, CPA, wealth advisor, others
•  What is your growth and exit plan for your business? 
• Consider your business tax classification and review exit strategies:
  1. If you sold today, what your exit will look like?
  2. What type of tax liabilities you will have from your exit and are there ways to minimize them?
  3. Are there other tax classifications that may work better for you? Should you restructure?
•  Are you governing documents up to date? Did you engage legal counsel to review or draft your governing documents? Has anything changed since your governing documents become effective? Especially consider:
  1. Do you have business partners?
  2. Do your governing documents include transfer provisions to provide for transfers of ownership interests?
  3. Are you subject to any succession agreements?
  4. Do you have a buy-sell agreement?
  5. Have you considered unfavorable exit scenarios and have you provided for those in your transfer agreements?
  6. What will happen to your personal estate plan and your beneficiaries in the event of unfavorable exit? 
• Is your family involved in your business? Have you considered how to provide for succession planning among your family members? 
• Have you considered your key employees and key service providers in your succession plan?
•  Have you done any planning with business insurance?

 Consult your attorney for further guidance.

About the Author

Asel Lindsey is a member at Dykema, a national full-service law firm, and an Assistant Practice Group Leader of the firm’s Tax, Trusts and Estates Practice Group. Asel advises on a broad range of corporate tax matters with a focus on transactional tax practice and estate planning. Asel plans and structures complex business transactions, including mergers and acquisitions, joint ventures, and restructurings. As a member of the firm’s DSO group, Asel regularly advises on tax issues related to formations, acquisitions and restructurings of dental service organizations and other managed services structures. Asel also regularly works with high-net-worth individuals, business owners, and families with multigenerational wealth, assisting them with succession issues, estate planning, asset protection, lifetime transfer planning, and charitable objectives.