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Estate Planning 101

Unfortunately, confusion and myth abound when it comes to “estate planning.” Perhaps that is why so few people actually get around to making such plans at all.

What is estate planning? If you were to ask 10 adult Americans this question, you would likely get 10 different answers. Even otherwise financially savvy people seem confused about estate planning.

Most erroneously equate estate planning with death planning. They think estate planning is limited to arranging for the ultimate distribution of their assets at life’s end.

Due partly to this confusion and partly to good, old-fashioned procrastination, it is little wonder that six out of 10 adult Americans have no estate plan at all.

In reality, the ultimate distribution of your assets is but one of many important elements to successful estate planning. Were your estate plan your autobiography, then the ultimate distribution of your assets would only be Chapter 4, the book’s final chapter.

The preceding chapters of your estate plan would involvea lifetime process of making legal arrangements to protect yourself, your loved ones and your hard-earnedassets from three fundamental estate planning challenges: unnecessary probate, confiscatory taxes and unpleasant surprises.
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Business Owner Blues

Being a business owner today is both rewarding and challenging, especially if your business is a family business. For business owners facing the unique challenge of transferring ownership of the family business upon retirement, disability or death, a properly funded Buy-Sell Agreement may be the key to survival.

Are you a business owner? If so, then you probably know what it’s like to be the first one to arrive in the morning and the last one to leave in the evening. Over the years, you have no doubt worked through physical, mental and financial pain that would have caused other folks to close shop and look for a job elsewhere. No doubt, as a business owner you have survived untold challenges. If yours is a family business, then you face some unique challenges to protect and preserve your business … and your family.

It would be an understatement to say that family businesses are the backbone of the American economy. Some 90 percent of all businesses in this country are either family-owned or family-controlled. They come in all shapes, sizes and colors, representing all sectors of our economy. From agriculture, to services, technology, and manufacturing, family businesses generate an estimated one-half of the U.S. Gross National Product and pay half of all wages earned in this country. Not all family businesses are traditional small businesses either. In fact, about one-third of all businesses included in the Fortune 500 are family businesses. But not all of the family business statistics are rosy.

Common Estate Planning Blunders

Proper estate planning is not just for the rich and famous. Every adult American has an estate worth planning, regardless of their net worth.

Quick. When you hear the words estate planning, what mental images do you see? Do you see beautiful, tanned people with incredible wealth, living in enormous mansions, riding in shiny limousines and boarding private jets bound for exotic destinations? If so, then you are only partially correct.

In reality, everyone has an estate worth planning. Some are just more complex than others. Here are some basic estate blunders common to princes and paupers alike.
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Elder Law 101

Good news, bad news.

The good news is that Americans are living longer than ever. The bad news is that we eventually wear out physically, mentally or both. It is a classic Catch-22.

Are you a seasoned citizen (i.e., over age 65), do you care about someone who is, or do you anticipate becoming a seasoned citizen yourself one day? According to U.S. Census Bureau statistics, today, there are nearly 35 million and by 2010 there will be some 40 million seasoned citizens.

Thereafter, due to the graying of the Baby-Boom generation, we will see that figure jump to 53 million in 2020 and to 70 million in 2030! As this seasoned population grows, so will the need for Elder Law services.

What is Elder Law?

Generally speaking, Elder Law is the holistic application of general legal principles to the specific emotional, logistical and financial needs of the elderly. Many seasoned citizens are concerned with two fundamental threats to their dignity: (1) becoming incapacitated and thereby losing control to the court system regarding their personal, health care and financial decisions; and then (2) running out of money due to the catastrophic costs of long-term care. Fortunately, both of these threats may be minimized or avoided through properly coordinated legal and financial planning.

Planning for Minor Children

It is an unfortunate fact of life: airplanes plummet, trains derail, ships sink and automobiles crash. Sometimes there are survivors, sometimes there are no survivors. What is left when a tragedy claims both parents of minor children? Orphans and assets.

Children are a family’s greatest treasure. Think of all the precautions taken to safeguard young children – from the first purchase of an infant car seat to the compulsory swimming lessons and even driver’s safety instruction. Yet, most parents leave their children completely unprotected from one of life’s most crushing blows – being orphaned upon the loss of their parents.

Great Expectations

While every parent expects to rear their minor children to adulthood, life may throw any of us an unexpected curve ball in the form of a fatal injury or illness. Are you, and your children, prepared for that curve ball? Who would you legally appoint to serve as their back-up parents to fulfill your parental responsibilities? Your answer may depend on how family is defined for you. Is yours a single parent family, a blended family or a traditional family?
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Pet Trust Planning 101

Do any of your closest friends have feathers, fins or fur?

What will happen to them if you are no longer around?

Although it cannot replace you, a Pet Trust can provide your friends with love and care for the rest of their lives.

An estimated 500,000 pets are euthanized each year by shelters and veterinarians when their owners predecease them.1 Do any of your closest friends have feathers, fins or fur? Are you also responsible for their room, board and ongoing veterinarian care?

Consider this: If something untoward were to happen to you today, what would happen to your feathered, finned or furred friends tomorrow?

What arrangements have you made for these friends (some people refer to them as pets, so we will use the terms interchangeably) in your Life & Estate Plans? Unfortunately, if you are like most Americans (58 percent), you do not have even a basic Last Will and Testament. Not surprisingly, most Americans also have neither health care directives (69 percent) nor powers of attorney for either health care or financial matters (74 percent)

Voluntary Philanthropy

Many taxpaying Americans are involuntary philanthropists because they fail to maximize the tax incentives available under the Internal Revenue Code to become voluntary philanthropists in support of the charities of their own choosing.

Are you a gracious giver, perhaps even a philanthropist? If you are a taxpayer, then the answer is yes.

During your lifetime, your wealth is subject to taxes in a variety of forms. Income taxes levied on your wages, interest and dividends, and capital gains taxes extracted on the sale of your appreciated assets may tend to make April 15th one of your least favorite days each year.

Voluntary Taxes

Our tax system is voluntary in its form, but the civil and criminal penalties for noncompliance make the process involuntary in its substance.

Thankfully for our national defense and other essential programs of the federal government, most taxpayers voluntarily comply with the Internal Revenue Code (IRC) and pay their fair share.
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Retirement Plan Tax Traps

Qualified Retirement Plans (QRPs) present some of the most complicated tax and non-tax planning challenges of any asset in an estate, especially for married couples.

The failure to make proper Life & Estate Plans for your QRP can unnecessarily enrich the IRS and disinherit loved ones. For many Americans, a significant portion of their estate value is in Qualified Retirement Plans (QRPs). This remains true despite the (inevitable) ups and downs of the stock market.

One reason QRPs weather economic storms better than non-qualified investments is their unique tax treatment. All contributions to QRPs are made with pre-tax dollars and all of the growth inside such plans is tax-deferred until withdrawn. Hence, contributions to QRPs not only reduce your current income tax liability, but they grow with compound interest and without the barnacles of annual income taxation.

Your estate value includes everything that you own: your QRP, your life insurance death benefits, your real estate, your overall non-qualified investment portfolio and your collectibles.

Under current tax law, every taxpayer has a $3.5 million Applicable Exemption Amount to protect their estate from federal estate taxes. A married couple may protect a combined total of $7 million. However, this is not automatic. Many couples fail to maximize their federal estate tax protection.

Successful Conclusions

Estate Planning is a Lifetime Process, not a one-time event.

Though estate administration is the final stage in the process, a successful conclusion is dependent on proper completion of each of the preceding stages. Prince or pauper, life’s journey eventually comes to an end for us all.

Death, it has been said, is an equal opportunity experience. When your appointed time arrives, will your loved ones find your personal and financial affairs in order or in disorder?

What grade will they give your Life & Estate Plan once it has passed through the three basic stages of Estate Administration? These basic stages are Collection & Management; Payment of Expenses; and Asset Administration & Distribution.

Collection & Management

The initial responsibility of your appointed fiduciaries will be to identify, safeguard and insure your assets. Unfortunately, if they cannot identify your assets, then it will be impossible to safeguard and insure your assets. Have you created and maintained an up-to-date inventory of your assets? At a minimum, your inventory should provide sufficiently detailed information about your assets so your fiduciaries can find them.
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Women and the Law

Technically, women have been the nurturers in our society. This is especially true in the context of family relationships. Depending on how family is defined for her, a woman may care for a husband, children, pets, parents or even in-laws. Amidst all of her caring for others, however, too many women overlook important legal and financial matters. 

Women play a variety of roles in their lifetime. For example, depending on her unique circumstances, a woman may be a daughter, an aunt, a wife, a friend, a mother, a grandmother or even a greatgrandmother.

Traditionally, especially in her family relationships, a woman is likely the nurturer or caregiver. While she is busy meeting the needs of others, a woman may forget to take care of her own needs … even needs as fundamental as her own Life & Estate Planning. Who will take care of her, the important people in her life and her property if she is unable to do so?

Who will be the caregiver for the caregiver?

Life Planning

Would your loved ones be prepared to take care of your legal and financial responsibilities if you were incapacitated? The law says every adult American must make their own personal, health care and financial decisions.

Certainly the daily news and our own personal experiences tell us that a serious injury or illness can strike anyone at any time.

Blended Family Basics

If you are a blended family member, then you are in good company. Blended families now outnumber traditional nuclear families. And the number is likely to grow, based on current divorce statistics and trends.

Divorce is rather common in America. In fact, an estimated 50 percent of first marriages end in divorce after an average of 11 years. The average divorce will cost the parties about $15,000 and take approximately one year to process from initial filing to final decree. Thereafter, the resulting economic fallout will tend to reduce the standard of living of both ex-spouses. Not surprisingly, divorce is not only expensive, but researchers consistently rank it as one of the most stressful life experiences.

Blended families face unique social, psychological and economic challenges. As a result, an estimated 60 percent of second marriages end in divorce. Fortunately, there are numerous organizations and support groups dedicated to helping blended families with these challenges. Unfortunately, however, little attention has been paid to the critical Life & Estate Planning challenges of blended families. These challenges include disinheriting your ex-spouse, protecting your own children, providing for your new spouse and minimizing your estate taxes.
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About the Author

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Jimmy D. Long, Jr. Attorney at Law

I love my work…

Every time I can help a family preserve assets they’ve worked a lifetime to build, I feel a sense of pride in what I do. The truth of the matter is this – most people just didn’t expect to live this long! 

I look at my dad, who didn’t expect to live to 85 when his dad died at 65.  People are rattled – most don’t have long term care insurance, because they never dreamed they’d be dealing with these life issues.   

I see people in my firm who are scared – whether it’s a big, gruff, tough guy who’s melted into a puddle of tears because he’s terrified of losing everything, or a 100-lb-soaking-wet grandmother of 8 who’s desperately trying to care for her husband with dementia at home.  I see families of those with special needs who have been told they have no choices – just disinherit your child. 

I see parents who are at the end of their rope, who love a child with an addiction, a controlling or abusive partner, or who just make plain old bad choices.   What I love most about coming into the office every day is knowing that I have solutions for all these people!   

I can’t cure a diagnosis of cancer or Alzheimer’s, but what I can do is this: I can offer peace of mind and solutions to the problems my clients face.  I can help take the fear and the sting out of these issues, so you can focus on what’s important.  

Even for those who don’t have a problem in sight, peace of mind is important.  An unexpected health crisis, divorce, or even marriages and remarriages (after one person dies) are an important factor to plan for. 

Want to make sure your kids get your assets after you’re gone, and not your wife’s handsome new husband?  We can plan for that. I’m active in my community and in my church, and love spending time with my family.  I’ve been the president of my local Kiwanis club, and I’ve spent many years helping at the district attorney’s office, especially in cases of child abuse and neglect.   

When I’m not working, I’m almost always with my wife and three girls!  We are very active and love to travel.  I’m pretty lucky that all three girls still like to hang out with their mom and dad, and by the end of a hot day, we’re usually all hanging out in the pool!
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