Estate Planning is, in the words of Woodie Guthrie, "get[ing] your business fixed right." (Song: "East Texas Red"). All of us sooner or later will die. Most of us will leave property to be passed to others. A major component of estate planning is the script for who gets what when you die. But "estate planning" has more to it than that. Here are some items to consider:
During your lifetime you may wish to have a member of your family be able to act for you in business transactions if you are unavailable (for example on a vacation in the Caribbean) or are unable to act for yourself in such transactions because of a disability. You can designate the person to act for you by a Durable Power of Attorney
The will is the classic document for transmitting property at death and appointing the person to take care of such details. That person is your Personal Representative. Without a will, if you leave a probate estate, your estate will devolve to your heirs at law as fixed by statute. Who takes, and in what shares, may or may not suit you. Similarly, who gets appointed as personal representative may not be your choice.
There may come a time when, although you are alive, you may be so disabled
as to be unable to make medical care decisions for yourself. You can appoint
another person, usually a family member, to make these decisions for you by
what, in Michigan, is called a Patient Advocate Designation. You can give your
Patient Advocate directions for making those decisions in a Living Will which
can be combined with the Patient Advocate Designation.
If your situation requires Federal Estate tax planning then in all likelihood you will need to consider a Trust because it provides the most efficient way to separate, manage, and ultimately distribute estate assets upon death and thereafter. Usually a Trust is created during your lifetime and, like a Will, can be changed or terminated as required. It is uncommon today in Michigan to use a Testamentary Trust, that is a Trust in a Will.
Under appropriate circumstances substantial gifts to family members or charity may be considered. Annual gifts may be made to individuals in amounts up to $10,000.00 without filing gift tax returns (unless the gift is split between a husband and wife) and without use of the Unified Credit from the Federal Estate and Gift taxes.
Under appropriate circumstances one may wish to create an irrevocable trust in order to make a gift of property but under terms that delay the final taking of the property or divide up the rights in it.
Individuals and families frequently wish to achieve charitable goals that are tailored to their specific interests. They also wish to avail themselves of the appropriate deductions from federal income and estate taxes for such gifts. In order to do this they may create a private foundation.
Families with considerable wealth need to be conscious of the impact of the federal Generation Skipping Transfer Tax which imposes a 46% tax (in 2006), with some exceptions, on transfers to persons more than a generation below the transferor.
Married couples with estates which will incur a federal estate tax usually implement the marital deduction along with the unified credit in order to eliminate all federal estate taxes on the death of the first dying spouse. The marital deduction applies to assets transferred to or for the benefit of the spouse. The Unified Credit shields assets which are transferred to or for the benefit of the family members (which may include the spouse and others). The Unified Credit shields assets up to $2,000,000.00 (2006-2008). Marital deduction planning may be very simple or extraordinarily complex. There are numerous special rules which must be considered.
The estate tax is presently in a state of flux. For many years, the estate tax was assessed on estates over $600,000. It was raised to $1,000,000 in 2002. In 2006, it is $2,000,000, where it remains through 2008. In 2009, it increases to $3,500,000. In 2010, there is no estate tax at all. In 2011, it is scheduled to return to $1,000,000. Phew! If this is confusing to you, imagine trying to draft an estate plan with the uncertainty of these rules! We, at John A. Scott, P.C., follow closely all legislation, proposed legislation and planning techniques on maximizing flexibility and control in our client’s estates, while also minimizing estate taxes.
The Charitable deduction works in the same way as to the federal estate tax as the marital deduction to lower the taxable estate. As in the marital deduction there are numerous technical rules which must be adhered to.
© John A. Scott, P.C.
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