15 PROBLEMS THAT COULD COST YOUR CLIENTS A FORTUNE -- AND THEIR SOLUTIONS
by Mike Bascom
Problem #1: Probate.
Probate is the court-supervised process of passing title and ownership of a deceased person's property to his or her heirs. The process consists of assembling assets, giving notice to creditors, paying bills and taxes, and then finally distributing the assets to the heirs. This is all done under the supervision of the Probate Court. Probate can cost 2% to 4% of the total estate and take months, if not years to complete. Your clients can opt out of the probate process entirely by setting up a revocable living trust to which they have properly transferred all their assets. If their trust owns all their assets, there will be no probate.
Problem #2: Lawsuits.
Protect your clients assets from frivolous lawsuits by doing one or more of the following, as appropriate: (1) purchase an umbrella liability insurance policy, (2) begin a program of making gifts, (3) establish a family limited partnership, (4) set up various irrevocable trusts, or (5) create a limited liability company or trust located in a foreign jurisdiction.
Problem #3: Estate taxes.
Protect your client’s assets from state and federal estate taxes by setting up and funding a tax-saving Marital and Family Trust. Under current law when used properly, a Marital and Family Trust will completely protect your client’s assets from estate taxes for estates valued up to $1,500,000 for single people and $3,000,000 for a married couple. Not taking advantage of this planning could cost your client’s heirs hundreds of thousands of dollars in unnecessary estate taxes. Some other ways your clients can avoid or reduce estate taxes include: (1) setting up an irrevocable trust for their children, grandchildren or other heirs, (2) moving their life insurance into an irrevocable trust, (3) creating a charitable remainder trust, (4) creating a charitable lead trust, (5) creating a family limited partnership, (6) creating a qualified personal residence trust, or (7) purchasing a second-to-die life insurance policy so their loved ones can pay estate taxes for pennies on the dollar. (NOTE: Because of changes in the law, these numbers will continue to change over the next few years.)
Problem #4: Income taxes.
You can lower your client’s income taxes by helping them set up a family limited partnership to own income-producing property. Then they can make gifts of limited partnership interests to the other limited partners, often their children or grandchildren. These recipients may pay income tax at lower tax rates. A family limited partnership is an excellent tool to shift income to partners who pay taxes at lower rates. It's also an effective way to make gifts and still keep total control of all the property owned by the partnership.
Problem #5: Capital gains taxes.
Protect your client’s assets from capital gains taxes by having your clients own assets that are subject to capital gains taxes in a trust set up in another state. For example, some people set up an Alaska based trust, which grants a step-up-in-basis on the entire asset when any one of the joint tenants dies.
Problem #6: Spouse’s creditors.
Protect your client’s assets from the claims of their spouse’s creditors and any future spouses. Have their lawyer include creditor protection provisions in their Family Trust and be sure they appoint a properly trained trustee. If your client is expecting significant problems, consider having them set up the trust in a foreign location.
Problem #7: Inexperienced beneficiaries.
Protect your client’s assets from being wasted by young or inexperienced family members. Most beneficiaries spend their entire inheritances in less than two years, regardless of the size of the estate and the heir’s social or economic background. Have your client’s lawyer set up their Family Trust with protective provisions that provide guidance and safeguard your client’s life savings.
Problem #8: Guardianships.
Protect your client’s assets from the high costs of incapacity by setting up a revocable living trust and help your client transfer all their assets to the trust. Be sure the trust specifies who will determine when your client is deemed to be disabled. Don’t leave this decision to a Judge that does not know your client. Also make sure your client has a Durable Power of Attorney for Health Care and a limited Special Durable Power of Attorney for transferring newly discovered assets to their revocable living trust. Don’t ever let them sign a General Durable Power of Attorney for financial matters.
Problem #9: Unwanted medical care.
Protect your client’s assets from unwanted and costly medical care by having them sign a Physician’s Conference Checklist. This document allows your client to spell out which medical care, treatment and procedures they want -- and which they don't want. If your client wishes, they can be very specific regarding their wishes.
Problem #10: Unwanted emergency care.
Protect your client’s assets from unwanted emergency care by having them sign a Living Will. It will specify how they are to be treated – or not treated, as they choose – in the event they have a terminal illness, are in an irreversible coma, or become brain dead.
Problem #11: Ineffective estate plans.
Protect your client’s assets from an ineffective estate plan. Don't depend on pre-printed "cookie cutter" form kits or document preparation services for your client’s estate plan. Contrary to what you may have heard or read, one size does not fit all! You may think they have precisely what they need. But you will never know until their family members have to clean up the mess. You see, after your client becomes disabled or dies, their family members will try to use their estate documents to administer the estate. If the documents weren't drafted correctly, they will cause additional expense and long delays as the Probate Court takes control of administering your affairs.
Problem #12: Commissioned salespeople.
Don't depend on financial planners or insurance professionals to plan your client’s estate. They simply don't have the knowledge, skill, judgment and experience to handle the many legal consequences of your client’s estate plan. Your client wouldn’t hire a travel agent or veterinarian to write their will. Then why would they hire a stock broker or annuity salesperson to plan their estate? Your client’s estate plan is too important to entrust to anyone other than a highly skilled, qualified estate planning and asset protection attorney who is licensed to practice law in Georgia. Of all the estate plans I’ve created, no two of them have been the same. After your client dies and their family members try to settle the estate, that is not the time to discover you hired the wrong person to prepare your client’s plan. Do your client’s family a real favor and make sure your client’s estate plan has been correctly and skillfully set up and properly funded.
Problem #13: Unqualified lawyers.
Many attorneys are getting into estate planning because this area of the law is becoming very popular with senior citizens and business owners. Unfortunately, many of these newcomers don't have the experience needed to be an effective estate planner. I recommend that you choose an independent attorney who focuses his law practice on asset protection and estate planning. This will help insure that the lawyer you choose has the knowledge, skill, experience and judgment necessary to fully protect your client, their family, money and property, and to give your client advice and counsel that is in your client’s best interest.
Problem #14: Non lawyer experts.
Many well meaning people will freely give your client bad advice. It may come at the dinner table from your client’s nephew who is a real estate agent. Or it may come from the resident “expert” down at the club who just had his estate plan done by his divorce attorney. Sometimes these “experts” are highly opinionated media personalities who have their own radio or television show. However well meaning these people are, I urge you to very carefully weigh the source before you take their advice. Remember, they have not been trained as an attorney. They have not undertaken a thorough examination of your client’s particular situation and needs. And they certainly are not ready to take responsibility for their advice to your client. The media types especially, will deny any responsibility by stating that they are not an attorney, and then immediately proceed to offer their advice. Don’t let them tempt you or your client. When your client becomes disabled or dies and your client’s loved ones are trying to handle the affairs, it is not the time to discover that your client got bad advice. Regardless of how successful these “experts” have been in their own particular field of expertise, do your client’s and their family a real favor and tune them out.
Problem #15: Relying on disclaimers.
Some estate planning attorneys justify their failure to properly title their client’s assets to the estate plan while their client is alive. They are relying upon the surviving spouse filing a Disclaimer with the Probate Court, to accomplish their estate tax planning. A Disclaimer is an irrevocable statement that the person is giving up all interest in the particular asset forever. In order for a Disclaimer to be effective it must be done within 9 months of the date of death. It must also be done before the surviving spouse uses any of that property. It is easy to violate these conditions. On top of these technical requirements, add the complication that the surviving spouse is oftentimes very emotionally over the loss of their spouse. They may find it hard to concentrate or even act. Sophisticated tax planning is usually not on the top of their priorities. This increases the chance of making a careless mistake thus invalidating this type of planning. To see how a disclaimer works, consider a couple that owns a brokerage account together. When the husband dies, the wife continues to receive the dividend checks and deposits them into her checking account. By accepting even one dividend check she is forever stopped from filing a Disclaimer as to the full brokerage account. Remember the marginal estate tax rates are 47%!