Provided by the Law Offices of RICHARD
MAYBERRY
MAYBERRY LAW FIRM
2010 Corporate Ridge
McLean, VA 22102
(703)714-1554
Committed to providing the highest quality estate planning legal
services for individuals, families and businesses |
Every election cycle we hear the same drum beat to
repeal the Federal Estate Tax (FET). Few issues are more politically and
socially divisive. Truly, the debate over the FET provides fertile soil
for economic class warfare. The purpose of this article is not to consider
the merits of continuing or repealing the FET. Rather, we will consider
the world of estate planning that exists independent of any tax
considerations. But first, a little history lesson.
Wars and Rumors of
Wars
So far American
taxpayers have seen three variations of the estate tax come and go,
typically tied to "wars and rumors of wars." The first estate
tax was enacted at the end of the eighteenth century to finance American
naval expansion during tensions with France. It was repealed in 1802. The
second estate tax arose following the outbreak of the Civil War. It was
repealed in 1870. The third estate tax was implemented at the end of the
nineteenth century to finance the Spanish-American War. It was repealed in
1902. The current estate tax was enacted in 1916, to underwrite America’s
entry into World War I…the so-called "War to End All Wars."
While it never has been repealed, the current FET has been overhauled
several times.
Even were the FET repealed, it has
demonstrated a historical
propensity to reappear when the federal government needs additional
revenue. While the FET may come and go with the changing winds of
politics, the need for proper estate planning will never go away. Let’s
review some compelling non-tax reasons for proper estate planning.
Incapacity Planning
Quick. Who
would make your personal, health care and financial decisions if you were
incapacitated due to an injury or illness? Would your loved ones or
friends be able to negotiate your living arrangements, select an
appropriate treatment plan for you from options presented by your
physician, or file your income tax return? Unless you already have proper
estate planning in place, you may not like the answer: Probate. While a
necessary component of our judicial system by default, the Probate Court
will make rather private matters a matter of public record. Such private
matters include not only the nature of your incapacity, but also your net
worth. Additionally, the decision-maker appointed for you by the Probate
Court may not be your first, second, or even third choice.
Back-Up Parents
Nothing is more
valuable than one’s children. Most parents sacrifice considerable time
and treasure to provide for them. Nevertheless, many of these same parents
fail to make proper estate plans for the care of their children if
orphaned. Without such planning, the Probate Court will appoint the
"Back-Up Parents" it chooses for your children. Likely these
appointees (the "Guardians") will also manage the inheritance
for your children until they reach adulthood (e.g. age 18 in most states).
Since you are careful to ensure a safe, secure and moral home environment
for your children when you go out for the evening, why not make sure it
stays that way even if you don’t return?
Inheritance
Protection
Without proper estate
planning, your adult heirs (e.g. age 18 in most states) may receive their
inheritance outright. Heirs who are minors may receive their inheritance
outright upon reaching legal adulthood. In either instance, an outright
inheritance without any control or protection may be lost due to divorces,
lawsuits, bankruptcies and good old-fashioned squandering. There are
estate planning strategies that could protect the inheritance both for
your heirs and from them. Moreover, you may even create financial
incentives in your planning to encourage responsible behavior and
discourage irresponsible behavior.
Special People, Special Plans
Do you have a "Special Needs"
family member? If so, regardless of their age, special estate planning is
required to protect both their inheritance and their access to important
assistance programs. Without proper estate planning, their inheritance may
disqualify them from many private and public assistance programs. Then,
once disqualified, what happens when their inheritance is spent and the
assistance program is discontinued? Alternatively, careful planning may
enable the inheritance to comply with the letter and the spirit of various
rules governing eligibility for such programs.
Blended Families,
Blended Estates
Statistics
reveal that there are more blended families today than first-marriage
nuclear families.* Under such circumstances how do you control and protect
your wealth to accomplish the often-competing objectives of providing for
your spouse and your own children? Without legal planning you may
unintentionally disinherit
someone. Who will it be? If that happens, relationships may be forever
ruined, or vicious litigation may result. To make matters worse, your
ex-spouse may be one of your heirs. *Source: Center for Law and Social
Policy (www.clasp.org).
Specific
Distributions
A recent
national survey** of inheritances found that 47% of family fall-outs occur
over tangible personal property distributions. Do you have any heirlooms
that hold significant emotional value for certain loved ones? If you fail
to specifically designate the beneficiaries for such
"valuables," then they may be sold in an estate sale to a
perfect stranger. Proper estate planning here may preserve family harmony.
By the way, the same survey found that 63% of families reporting "no
conflict" over an inheritance had known what to expect ahead of time.
**Survey by AARP/Scudder Investments.
Family
Business Continuation
An estimated 90% of all U.S. businesses are
family-owned or family-controlled. At any given time, 40% of family
businesses are in transition from the founding generation to the next
generation. Less than 1/3 of family businesses survive this transfer. Of
those that are successfully transferred, only about 1/2 survive another
generation. Why such a high transfer failure rate? Too often it is the
failure to properly integrate family and business estate planning into a
comprehensive, overall strategy. You must be willing to ask yourself some
tough questions. What are your priorities for business and family? Would
your surviving spouse run the business or would you want your spouse to be
financially secure independent of the business? Do you have children who
are active in the business and others who are not? If so, do you intend to
treat them equally in planning their overall inheritance? Will that be
possible when the business is the primary estate asset…and there is
little liquidity in your estate? If no family member will succeed you, is
there an employee or friendly competitor who might be interested in
acquiring it?
Consider Life Insurance as the Swiss Army Knife of estate
planning. It is an indispensible tool for estate creation, estate
equalization and estate liquidity. Initially, Life Insurance can create an
instant estate for your loved ones if you die before you have time to
otherwise create financial security for them. That Life Insurance estate
can be there for daily living needs, braces, college educations and
weddings ... even if you cannot. Later on, your Life Insurance can
equalize the inheritance among your loved ones, whether in a blended
family or in a family business. Finally, Life Insurance can provide enough
liquidity to satisfy any debts or expenses following your death and ensure
that your surviving spouse can remain financially independent without you.
Regardless of the purpose for your Life Insurance, only through proper
estate planning can you be certain that the proceeds will be protected and
applied as you intended.
According to conventional wisdom there are only two
certainties in life: death and taxes. While politicians can repeal the FET,
it is doubtful that they will ever successfully repeal incapacity or
death. Until they accomplish that, the non-tax reasons for proper estate
planning will remain compelling. |
