For the vast majority of Americans, planning is not discretionary. These individuals continue to have – or perhaps for the first time have – personal concerns that they need to address now because these concerns are unrelated to the economy. In fact, some of these concerns may even be made worse by our current economic situation.
In addition, for anyone who may be subject to federal or state estate tax in the future, unusual circumstances have created a “perfect planning storm” that will not last long. This newsletter addresses some of the planning needs unrelated to the economy and discusses strategies that create the biggest planning opportunities today.
Planning Needs Unrelated to the Economy
These planning needs are often more critical for those with fewer assets than for those with more wealth.
Nursing home costs are increasing much faster than the inflation rate would imply. Thus, many of us quite appropriately are very worried about how we will pay for that kind of care if we need it.
Planning Tip: Careful consideration of how to pay for long-term care is critical for most individuals.
Also of concern to many people is who will provide long-term care and whether those caregivers will care for us in the way we desire. For many, there is a strong desire to stay at home as long as possible. For others, the companionship found in an assisted living facility makes that choice preferable. Still others need care that cannot be provided at home or only at a prohibitive cost. And, not surprisingly, these goals often change over time and with changing circumstances.
Planning Tip: A trust that sets forth your current, carefully thought-out disability objectives is the best way to ensure that your planning meets your personal goals and objectives.
Special Needs Planning
Failure to properly plan for a person with special needs can have disastrous consequences, especially if the person is receiving government benefits.
Planning Tip: A Special Needs Trust that incorporates specific care provisions is a critical component of the planning necessary for a special needs person who needs ongoing support.
Planning Tip: Insurance on the lives of the parents or grandparents of a special needs person frequently funds the ongoing care of that special needs beneficiary.
Beneficiary Protection Planning
Also, divorce rates exceed 50% nationally. Many individuals express concern over their children and grandchildren divorcing – they don’t want the assets they worked so hard to accumulate winding up in the hands of a former daughter-in-law, son-in law, etc. Since divorce rates increase in difficult economic times, this planning is even more important now than in better economic times.
Blended Family Planning
Planning Tip: Carefully drafted estate plans protect beneficiaries from divorce, creditors and themselves. Such plans can also provide for children from prior marriages, which is often the only way to ensure that these beneficiaries actually receive any inheritance.
The “Perfect Storm” for Taxable Estate Tax Planning
Certainty as to the Federal Estate Tax
As the U.S. Supreme Court said:
For those who may be subject to federal or state estate tax, we are in a “perfect storm” that creates exceptional planning opportunities not likely to be seen again for many years. The factors that have come together to create this “perfect storm” are (a) reduced asset values; and (b) historically low interest rates.
Reduced Asset Values
For example, if a particular stock you own declined from $100 per share to $80, now you can transfer 162.5 shares with a $13,000 annual gift tax exclusion (it went up from $12,000 on January 1, 2009) instead of 130 shares had it remained at $100. Married couples can give twice that amount, or $26,000 per person, per year. Typically, clients transfer this amount to children, grandchildren and other close family members.
In addition, reduced real estate and business values mean that you can transfer a larger percentage of these assets free of federal gift tax by taking advantage of your $5 million lifetime exemption from federal gift tax.
Planning Tip: At a minimum, if you are subject to federal or state estate tax, you should take advantage of the annual gift tax exclusion ($13,000 per person as of January 1, 2009) to transfer assets with reduced values to children, grandchildren and others. Ideally, you should make these gifts in trust to provide the beneficiaries protection from divorce, creditors, predators, and themselves.
Historically Low Interest Rates
Due to a number of reasons, these low interest rates make many estate planning strategies even more attractive, including: