What do Jimi Hendrix, Bob Marley and Abraham Lincoln have in common? Unfortunately, this is not the beginning of a bad joke. All three of these famous individuals died with no estate plan in place and decades of litigation ensued among both Hendrix’s and Marley’s family members. There are steps you can take now to ensure that your family does not end up in this situation. These steps range from simple to complex.
One of the most vital steps is to have your basic estate plan in place. This will be true for everyone no matter your net worth. The basic estate plan consists of a will, potentially a revocable trust, durable powers of attorney, designation of health care surrogate and living will. The will and revocable trust are designed to help you direct your preferred distribution of your assets. If you do not have a will, then the state will essentially provide one for you by statute. This state provided “will” may or may not coincide with your wishes. A revocable trust, depending on the assets and titling of same, may help you avoid probate. The revocable trust is a private document administered by your designated trustees. The revocable trust is also a helpful tool in the event you become incapacitated. In that situation your successor trustee could step in and administer those assets owned by the revocable trust without the need for court supervision. Along those same lines, a durable power of attorney helps to avoid a guardianship for your assets that are owned outside of your revocable trust. This document designates an attorney-in-fact to make financial decisions on your behalf. While your financial affairs are important, it is also a good idea to plan for who will make your health care decisions if you are unable to do so and what should happen if life prolonging procedures are contemplated. Having a designation of health care surrogate and a living will can accomplish this for you.
In addition to having a basic estate plan in place, it is important to regularly check your beneficiaries on any beneficiary designated assets. For instance, retirement accounts (401ks, IRAs, Roth IRAs, etc.), life insurance and any other accounts that has a beneficiary listed. If these types of assets do not have the correct beneficiaries, then they can override your estate plan instead of working in conjunction with it.
The federal estate and gift tax exclusion amount for 2020 is $11,580,000 and is set to increase to $11,700,000 for 2021. Married individuals would get to take advantage of portability of these exemption amounts for a total exclusion amount of $23,160,000 in 2020 and potentially $23,400,000 in 2021. The generation-skipping transfer tax exemption amount is also $11,580,000 for 2020 and is set to increase to $11,700,000 for 2021. These much higher exemption amounts are set to expire at the end of 2025. However, there is the potential for them to be lowered as early as 2021, if Joe Biden wins the White House and the Democrats still hold the House and capture the Senate. In fact, some practitioners believe if this occurs that such tax legislation could be made retroactive to January 1, 2021. With these looming uncertainties, you should consult your estate planning attorney about your specific circumstances and whether you should make gifts now in the amount of your remaining exemption.
If there is anything that 2020 has taught us it is that the truly bizarre can happen and we need to take steps to be prepared.
By Erin Bunnell, J.D., LL.M.
Vice President & Private Wealth Advisor, Trust