1. Anticipate, Before It’s Too Late
As clients age, there’s a significantly greater risk of incapacity. The failure to prepare a healthcare directive and living will, authorization for release of protected health information, and durable general power of attorney means that family members will be compelled to seek court intervention if your client becomes unconscious, has diminished capacity, or experiences some other emergency. This results in unnecessary delay and expense and will be completely inadequate if a client’s loved ones need to make a healthcare decision or act on their relative’s behalf with respect to financial, legal or personal matters. It’s essential to ensure basic protections are in place so that loved ones can act immediately in the event of these issues.
2. Spend a Little Time Planning to Save a Lot of Time Doing
The need for the court to oversee the administration of an estate can be time-consuming, costly and frustrating. Proper planning will allow for the probate process to be completed with greater expediency. This includes the preparation of revocable living trusts, the assets of which will not be subject to court review (even if the property is owned in another state) and updates to the titling and beneficiary designation of your client’s assets to ensure a far more efficient estate administration.
3. Take Advantage of the Opportunity of the Lifetime Gift Exemption
Dramatically reduce a client’s future potential federal estate tax by utilizing the temporary increase to the lifetime gift exemption. The Tax Reform and Jobs Act enacted at the beginning of 2018 significantly raised the federal estate tax exemption, but the current law will expire no later than Dec. 31, 2025. Furthermore, Congress can take action sooner to reduce the increased exemption. Therefore, high-net worth individuals and families must strongly consider leveraging the exemption while it’s available in order to remove appreciating and/or discountable assets from the taxable estate.
4. Don’t Skip Over Generation-Skipping Tax
Help a client understand the tax implications of the transfer of wealth across multiple generations to preserve their legacy for the descendants. The generation-skipping tax and the use of the GST exemption are among the most sophisticated planning concepts, but it’s essential to consider this issue as part of the larger estate plan. Bequests in trust to grandchildren, the design of a dynasty trust and the proper reporting of gifts are all connected to the deployment of the GST exemption and avoids the imposition of additional tax when an inheritance is received by more remote descendants.
5. Decrease Chances of an Increase in Federal Income Taxes
Evaluate strategies to avoid a potential increase in federal income taxes due to limitations on state and local tax deductions. Different types of out-of-state trusts (particularly those based in Delaware and Nevada) provide planning opportunities before the liquidation of an appreciated investment or business. Furthermore, life insurance, Roth IRA conversions and contributions to charitable vehicles (including private foundations and charitable remainder trusts) afford clients opportunities to mitigate state income tax exposure.
6. Step Up Planning With a Step-Up in Basis
Review the power of a step-up in basis upon death, reducing capital gains tax and delivering income tax savings your client’s loved ones can enjoy. Families must consider proper planning in advance of death. Asset transfers to an ailing spouse, community property trusts, asset swaps from existing irrevocable trusts and asset upstream gifting to parents are all options to put the surviving spouse, children and other heirs in the best position to sell an appreciated asset tax-free.
7. Plan for Long-Term Care in Short Order
The cost of long-term health care could drastically deplete an estate, but strategies may be available to mitigate the attrition of assets. In addition to traditional long-term care policies, life insurance policies can be structured with an accelerated death benefit to cover the cost of nursing home care and/or provide wealth replacement if other resources are diminished. Medicaid trusts and supplemental needs trusts also afford the possibility that assets may be preserved for the use of a surviving spouse or provide a meaningful legacy for children without sacrificing the ability to qualify for governmental benefits.
8. Expect the Best, Plan for the Worst
Protect the inheritance of your client’s heirs and ensure wealth is not diverted, in case a child’s marriage fails or there’s some other attack by a plaintiff’s lawyer. A properly structured trust for the benefit of a child or grandchild under a will or revocable trust can serve to secure an inheritance from an estranged spouse. It’s also important to evaluate how these benefits can be enhanced through a prenuptial agreement or other prenuptial planning measures. Such a trust can insulate the assets from attacks resulting from personal or professional liability, creditors and other legal claims.
9. Pay Special Attention to Special Needs
Ensure the inheritance of your client’s children and grandchildren will be used to enhance their standard of living, while preserving their ability to receive Social Security or Medicaid. If a client’s child or grandchild directly receives from the estate or benefits from a conventional trust, it will likely disqualify them for needs-based government benefits, forcing the funds to be used for basic living expenses and health care. Incorporating a supplemental needs trust into the estate plan will prevent the inheritance from being treated as a resource of that child or grandchild, which will allow for the continuation of payments from these programs. The assets of the trust can then be sheltered for uses not covered by the government, including social, cultural, entertainment activities, travel, visitation with family members, educational and vocational programs, and other quality of life considerations.
10. Prepare Your Client’s Heirs
Aid your client’s loved ones in the effective deployment of the wealth they pass along by imparting their family mission and values, including the intrinsic benefits of philanthropy. As a first step, encourage adopting a family mission as part of the estate plan as a means of conveying these wishes and expectations. Recognize the importance of gradually integrating children and grandchildren into the estate plan through periodic family meetings with the family’s professional advisors, which will help them to understand the purpose of the estate plan and the various considerations that go into preserving wealth for the next generation. Finally, those families who adopt charitable giving as a core tenet of the estate plan should include children in the implementation of those activities, including the continued support of causes supported by the family, the identification of new causes that align with donative intent and the development of relationships in the philanthropic community to ensure charitable gifts will have the greatest impact.