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The State of Estate Planning

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: January 24, 2018

There are two major issues facing estate planning today: first, most people who interest themselves with estate planning do so later on in life, despite the fact that there are many benefits to informing yourself and being prepared on matters of inheritance as soon as you have something to pass onto your loved ones, and […]

There are two major issues facing estate planning today: first, most people who interest themselves with estate planning do so later on in life, despite the fact that there are many benefits to informing yourself and being prepared on matters of inheritance as soon as you have something to pass onto your loved ones, and loved ones to pass it onto.

Second, many people have this misconception that an estate plan is something you formulate once, then lock in a vault only to be opened on the day you pass away on your deathbed.

The truth is that estate planning is constantly changing, and people’s needs are changing as well. On one hand, laws and regulations change the playing field, forcing estate planning experts to keep up-to-date and formulate new ways to streamline the estate planning process, and maximize a person’s financial legacy in the afterlife. On the other hand, countless life events merit the amendment or even total overhaul of a person’s estate plan, from marriage to divorce, birth to death, and more.

With the closing of the year’s first month, it is time to review some of the recent changes in estate planning, and it’s time to urge people to check on their estate plans, and see whether they’re up-to-date.

Estate Planning Explained

Estate planning is the process of maximizing how much of a person’s wealth passes on to the next generation after they die, while planning for financial management contingencies should a person be gravely incapacitated. Through estate planning tools, including trusts, wills, and various documents transferring the power to make financial and property choices on behalf of someone else, an estate planning expert can plan for any major disability or death, and ensure that a person’s property and wealth pass on as per the person’s will.

On the surface, that’s exactly what a last will and testament is for. But the will is a limited estate planning tool – it can only go so far, and much more is needed. All estate planning tools, however, serve the same purpose as the will – to lay out a plan for a person’s “estate”: their financial legacy, the wealth, and properties they leave behind after death, everything that exists in their name.

Some estates are so large that they require entire teams to represent and manage, such as the estates of major artists. These estates continue to earn money – for example, a musician’s estate will earn royalties for any music played in his or her name, growing the size of the estate beyond the person’s death.

Most estates, however, are much more modest – but still require adequate planning to avoid unfortunate scenarios, such as spending years waiting for the tied-up wealth of a family patriarch, or losing a sizable amount to it to bad management, taxation, and costly fees. That is why many estates forego the will as a major estate planning tool, and instead utilize the trust.

Beyond the Will

A person’s will allows them to assign beneficiaries to their wealth, while requiring the will to go through a probate process to prove the validity of the will, and prepare the estate for proper distribution. Other limitations aside from probate include the inability to add partial ownership of jointly owned property to the will, assign pet ownership, transfer life insurance policies, retirement accounts, or assign a specific fund for a special needs child without affecting government benefits.

For some of these limitations, a revocable living trust is the best option. For others, there exists a spectrum of tools designed to attend to nearly every possible concern a person might have for their loved ones after they pass on. For example, pet trusts exist, allowing you to create a trust fund for the care of your pet, while also leaving instructions as to who should care for it.

A living trust can take care of most estate planning needs while completely forgoing the probate process. Through clever estate planning and the use of both a revocable living trust and other trusts, you can reduce estate taxes, pass on partial ownership of a property instead of giving full ownership to a co-owner, provide for your children through individual funds, and do much more.

Increased Tax Exemptions in 2018

The first major change to estate planning in 2018 is embodied through the Tax Cuts and Jobs Act, passed by Congress in December 2017, as part of a Republican-led effort to abolish the federal estate tax completely, and leave the issue up to individual states.

While the milestone of abolishing the estate tax was not reached, the new Act does double the federal estate tax exemption amounts from roughly $5 million per person, to about $11.2 million per person, and over $22 million per married couple.

Current estate plans must reconsider any decisions made based on the previous tax exemption figure, while many estates no longer have to worry about the estate tax at all due to the increase in the exemption amount.

Estate Planning in California

California is one of the states that feature no state estate tax/death tax, instead only enforcing the federal estate tax. This chance is fairly recent in the history of the state, only affecting the estates of decedents who passed away on or after January 1, 2005.

That being said, now is still a great opportunity for people with existing estate plans to go over their trusts and/or wills, and reconsider any other estate planning tools currently in use in order to take advantage of the recent changes in the estate tax exemption.

Estate planning tools do not just exist to make is as simple as possible to pass on your wealth to the next generation – they exist to help people avoid unnecessary costs and ensure that as much of their wealth as possible is preserved as part of the estate when it passes onto their children.

And now, thanks to changes passed by the current administration, new estate tax exemption laws allow for new possibilities, including different “formula dispositions” which existed to ensure that a decedent’s estate could be transferred onto its beneficiaries as tax-free as legally possible.

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