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Planning for the Future Without a Crystal Ball

Planning for the Future (Without a Crystal Ball)

Creating a will, trust, or any type of estate plan has always involved dealing with an uncertain future.  Consider that just 20 years ago in 1997, the estate tax had an astonishing 55% rate with only a $600,000 exemption.  Back then, tax-driven estate planning was a mathematical necessity for a large segment of the population.

Fast forward to 2017.  Not only do we now have a generous $5.49 million exemption and a lower 40% rate, we also have renewed emphasis and action from the President and Congress on repealing the estate tax, as evidenced by the September 27, 2017 Unified Framework for Fixing Our Broken Tax Code.  So what does this mean for you, as you’re planning for the future?

Estate Tax Repeal Means No Need to Plan… Right?

Nothing could be further from the truth!  Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.

And, for those with high net worth, it’s also worth mentioning that estate tax repeal isn’t a foregone conclusion at this point either.  The Unified Framework still must be crafted into legislation that must pass both houses of Congress and then be signed by the President.  Given the political division the country faces (and the likely stiff opposition to the President’s tax proposal from Congressional Democrats), this will be no small feat.

While we wait for Congress to act on the Unified Framework, it’s also worth noting that the estate tax was already effectively repealed for more than 99% of American estates when the exemption was raised to $5 million (and indexed for inflation) in 2010.  The vast majority of estates fall below this threshold and need no special planning to avoid the estate tax.  But don’t think you’re out of the woods because you have less than $5 million.

Today, the focus of estate planning has shifted away from death taxes to other concerns that affect most families.  Estate planners, like us, can now work with you to protect you and your family against costly, public probate, guardianship, or conservatorship court proceedings and also further your legacy goals.

You might be worried about some of these things happening to your family:

  • A financially irresponsible child or grandchild wasting their inheritance simply because they lack the financial maturity to handle wealth.
  • A divorcing spouse of one of your heirs taking advantage of family wealth.
  • Family discord lurking under the surface that tears your family apart, especially after the death of the patriarch or matriarch.
  • A lawsuit, judgment, or bankruptcy that causes your family to lose their inheritance.
  • Alzheimer’s or another cognitive impairment affecting you or someone else in your family.

Luckily, we have well-developed, flexible legal strategies (such as lifetime trusts, standby special needs trusts, and robust incapacity planning, to name a few) for overcoming these issues.  Although estate planning can’t necessarily repair a damaged family relationship, proper planning can help make sure it does not get any worse.  But these strategies only work when we have a chance to work with you to implement or refresh your will, trust, and estate plan.

So, there’s no crystal ball.  Where should I go from here?

According to WealthCounsel’s 2016 Estate Planning Literacy Survey, about 74% of Americans find estate planning to be a confusing topic.  So, you’re not alone if you’re unsure about your next steps.  We’re here to help.

If you don’t yet have a will or trust, now is the time to explore getting one.  If you have an “old” will or trust, now is the time to talk with us about whether you need an update.  Modern families need modern estate planning solutions, and we are ready to help you create a flexible estate plan that works now, and will work in the future, even if the current tax laws change (even though no one has the proverbial crystal ball).

3 Asset Protection Tips You Can Use Now

3 Asset Protection Tips You Can Use Now
A common misconception is that only wealthy families and people in high risk professions need to put together an asset protection plan. But in reality, anyone can be sued. A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances. Below are three tips that you can use right now to protect your assets from creditors, predators and lawsuits.
What Exactly is Asset Protection Planning?
Before getting to the tips, you need to understand what asset protection planning is all about. In basic terms, asset protection planning is the use of legal structures and strategies to transform property that creditors might snatch away into property that is completely, or, at the very least, partially, protected.
Unfortunately, this type of planning cannot be done as a quick fix for your existing legal problems. Instead, you must put an asset protection plan in place before a lawsuit is imminent, let alone filed at the courthouse. So, now is the time to consider implementing one or more of these tips.
Now, on to the three tips.
Asset Protection Tip #1 – Load Up on Liability Insurance
The first line of defense against liability is insurance, including homeowner’s, automobile, business, professional, malpractice, long-term care and umbrella policies. Liability insurance not only provides a means to pay money damages, it often also includes payment of all or part of the legal fees associated with a lawsuit. If you do not have an umbrella policy, then now is the time to get one since it is relatively inexpensive when compared with more advanced ways to protect your assets. You should also check all of your current insurance policies to determine if your policy limits are in line with your net worth and make adjustments as appropriate. You should then review all of your policies on an annual basis to confirm that the coverage is still adequate and benefits have not been stripped to keep premiums the same.
Asset Protection Tip #2 – Maximize Contributions to Your 401(k) or IRA
Under federal law, tax-favored retirement accounts, including 401(k)s and IRAs (but excluding inherited IRAs) are protected from creditors in bankruptcy (with certain limitations). Therefore, maximizing contributions to your company’s 401(k) plan is not only a smart way to increase your retirement savings, but it will also keep the investments away from creditors, predators and lawsuits. On the other hand, if your company does not offer a 401(k) plan, then start investing in an IRA for the same reasons.
Asset Protection Tip #3 – Move Rental or Investment Real Estate into an LLC
If you are a landlord or a real estate flipper or investor, then aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators and lawsuits.
There are two types of liability that you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC owner’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the owner’s debt).
An LLC will limit your inside liability related to the real estate, such as a slip and fall accident on the front stairs of the property or a fire caused by faulty wiring located at the property, to the value of the property. In addition, in many states the outside creditor of the member of an LLC cannot get their hands on the member’s ownership interest in the company (in some states this will only work for multi-member LLCs, while in others it will also work for a single member LLC). This type of outside creditor protection is often referred to as “charging order” protection. This means that a creditor will have to look to your liability insurance and any unprotected assets to collect on their claim.
If you are interested in asset protection planning for your investment real estate using an LLC, then you will need to work with an attorney who understands the LLC laws of the state where your property is located to insure that your LLC will protect you from both inside and outside liability. To learn more, Call or contact us for an appointment.