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Heckerling 2024 conference Photo by Susan Lipp

Live from Heckerling: Planning for Modest Estates

Just because you have a tool doesn’t mean you should use it.

The 58th Annual Heckerling Institute on Estate Planning kicked off Monday in Orlando with a session entitled “Estate Planning for Modest Estates: Practical Tools Every Planner Should Know”—a refreshing change of pace from the usual bleeding edge planning fare on offer at the industry’s preeminent estate planning conference. Although, lest you worry we’re heading too downmarket, the presenters, Houston-based husband and wife attorneys, Mickey R. Davis and Melissa J. Willms, define “modest estates” as those between $2 million and $20 million.

The key area where many planners struggle when it comes to working with more modest estates is in estate planners’ (and clients’) natural inclination toward planning for the estate tax. For smaller estates, “Estate tax planning is not the driver,” says Davis. “Typical estate tax planning techniques often actually come at the cost of income tax.”

Income tax is where planners should instead be focused. “It’s all about that basis,” Willms jokingly points out. Occasionally lost in the hullabaloo over the potential estate tax savings realized by using trusts and other techniques to get assets out of an estate are the benefits of leaving them in, namely the “free” step up in basis. In the case of more modest clients, the estate and gift tax exemption amount becomes less a bar to shimmy under than currency to be spent increasing the value of other assets.

The power of portability in this regard, and just how much value one can wring out of deceased spouses unused exemptions, if the circumstances (sadly) line up, was a topic of particular focus.

In fact, much of the presentation could have been titled “Why clients of modest means don’t need trusts.” That’s an oversimplification, of course, and the presenters certainly offered a wealth of information about how trusts can still benefit such clients, but the main focus was on the various alternate methods that, while less ‘sexy’ give the most bang for the buck.

Items like powers of attorney, healthcare proxies and the appointment of agent for disposition of remains (or as Willms described it—“The ultimate decider of ‘who gets my stuff?’) hold great value, and the presenter stressed the need to give them thought and ensure that clients understand what each document means and what that person’s responsibilities will be.

Willms explained, “There are different emotions that come into play when naming agents beyond ‘do I trust them’?” The people you want making medical, legal and financial decisions aren’t necessarily the same. For instance, you want your medical power of attorney to do exactly what you would do in that situation if you were capable of doing so. You may even have left instructions for them in that regard. However, a durable power of attorney holder would be expected (and is empowered) to act with more freedom, as they could make any decision you can make, not just the one you would necessarily make in their place.”

As is unsurprising of a session that was accompanied by a casual 100 pages of written supplemental materials, the totality of what the presenters discussed is beyond the scope of this piece, but Davis adroitly summed things up by preaching temperance. “Even for modest estates tough decisions and tradeoffs have to be made. Just because you have a tool doesn’t mean you have to use it.”

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