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Product Solutions: Estate Planning

Disclaimer: We are not attorneys and provide neither legal advice nor documents. You should consult with a legal advisor who is competent in estate and business planning for advice relating to your personal and/or business estate plan. We work with attorneys either brought to us or to which we refer our clients. We coordinate our skill sets with those of competent attorneys to achieve optimum estate planning results.

Estate planning entails taking measures to manage your estate and affairs during both your mortal and financial lifetimes, and can include business as well as personal interests. While reducing taxes is an important consideration of estate planning, too often we find that professionals advising on estate planning tend to focus solely on the tax aspects of estate transfer while substantially ignoring asset protection strategies that can provide additional benefits to estate owners and beneficiaries. To illustrate, leaving an inheritance outright to heirs may satisfy the tax related issues; however, leaving an inheritance in trust may better protect the inherited asset from being compromised by divorce, bankruptcy, judgment, IRS levy, etc.

Assets with named beneficiaries, such as life insurance policies or retirement plans, are distributed directly to those beneficiaries and do not pass through estate planning documents such as wills or trusts. The same is true of assets titled Pay-on-Death or Transfer-on-Death. We consider individual assets to determine whether to name beneficiaries, or whether an alternate form of ownership makes sense. Proper titling may help assure that assets are protected from depletion by a judgment or fraud. Life insurance and long-term care insurance are two financial products that are often used in estate planning. If estate taxes must be paid due to the size of an estate, life insurance provides an economical way to satisfy the tax due while preserving assets for heirs. Additionally, the leverage created by paying premiums that are a fraction of the death benefit means that paying taxes with life insurance dollars costs pennies for each dollar generated by the death benefit. Long-term care insurance (LTCI) protects the value of an estate should care be required. Both life insurance and LTCI are discussed in the protection area of this site.

Personal estate planning documents commonly include wills, trusts, medical and personal powers of attorney and living wills. The operative concept with respect to these documents is “who is the next best person to handle your affairs should you be either unwilling or unable to handle them yourself.” It is common for spouses to name each other first in most capacities. Qualities to look for in one who will handle your affairs include; the ability to reason and not be unduly influenced by competing opinions and demands of family members, their spouses and children; prudence with respect to handling finances; and compassion and empathy for individual family members and their unique needs. When minor children lose parents, both custodial and financial considerations must be addressed. In our experience it is best to separate those responsible for custodial care from those managing the financial aspects associated with the care, maintenance and education of those minor children.

A difficult question to address is, “who determines when I am unable to handle my affairs?” We suggest your “disability panel” be comprised of your children (by unanimous consent) in consultation with your personal physician and perhaps a specialist if there are extenuating health concerns. Family members are usually familiar with the idiosyncrasies that make us unique in a way that professional health care providers simply may not know. Though generally a remote possibility, it may be prudent to name a personal guardian and/or conservator in your documents to eliminate questions regarding who you wish to perform those functions should the become necessary.

When using a “living trust” as the primary estate planning document, we recommend including a “trust protector” provision. The trust protector should have a deep knowledge of your wishes, goals and desires, and is responsible for seeing that those wishes are carried out. He or she can assist successor trustees in administering the trust as well as amending the trust to reflect changes in laws that could affect how your wishes are carried out. In some cases a trust protector can change your trust after your death to carry out your wishes. Additionally, a trust protector can assist beneficiaries in preserving assets and properly handling their inheritance.

Blended families present an additional set of considerations. Often children of both spouses in a second marriage are involved. Additionally, many times there is an uneven level of wealth between spouses that must be considered. One important matter to consider is a residence that will pass to the children of a deceased spouse and the “life estate” of the surviving spouse with respect to use of that property. Another issue involves the availability of assets to a surviving spouse who re-marries and how assets of the deceased spouse are to be used and subsequently passed to that deceased spouse’s ultimate beneficiaries (most likely their children).

Where significant wealth exists, additional measures to reduce estate and gift taxes must be considered. A simple concept for reducing estate taxes is to remove assets from any “incidence of ownership” for tax purposes, often through a trust or partnership arrangement. Customizing the design of an estate plan through the use of unique gifting and other transfer techniques can accomplish transfer goals in the most tax-efficient manner possible. Charitable remainder- and lead-trusts, family foundations, irrevocable life insurance trusts, personal residence trusts, generation–skipping trusts and other “advanced” planning techniques can be introduced into the planning process to meet individual needs.

Business entity planning and exit strategy/transfer planning are integral to a successful estate plan. Determining and maintaining a defendable value for your business can help reduce taxes and provide for ease of transfer for your business interest in either a planned or non-planning transition. Important business planning documents include; an appropriate entity structure, a funded buy-sell agreement, and a salary continuation agreement. Funding for business agreements often takes the form of “buy-out” insurance contracts or stipulated formulas for the purchase of ownership interests. How you hold your business interest can have a dramatic impact on your estate transfer and tax planning. If family members are or will be involved in your business, integrating your personal and business planning can save money in taxes both during and following your involvement in the business.



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Investment Advisory Services offered through Investment Advisor Representatives of Cambridge Investment Research Advisors, a Registered Investment Adviser. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, to residents of: Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Kansas, Maryland, Massachusetts, Montana, Nebraska, Nevada, New Mexico, Oregon, Utah, Washington, Wisconsin. Cambridge and Cornerstone Financial Planning, LLC. are not affiliated.