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THE CUSTOM CRAFTED ESTATE PLAN

Davidov Law Group

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Why not just create your own estate plan using fill-in-the-blanks documents that you can find on the Internet?

There are a number of answers to this question, but the thing that we would like to point out here is the need for a custom crafted estate plan.

Do you know what legal devices are best for your specific family dynamic, your financial standing, and your intentions? If you assume that you should use a last will you may be making an uninformed decision.

Let’s look at some common scenarios that exist that would all require specific estate planning steps.

Protecting Assets

Some people are in a position where asset protection is very important. This would commonly include individuals who are surgeons, landlords, and other people who are inherently vulnerable to lawsuits.

There are a number of things that can be done to protect your assets, such as the creation of a family limited partnership or a limited liability company. Some people absolutely must take action to protect assets.

Providing for Poor Money Managers or Heirs With Personal Problems

Not everyone is a perfect person. You may have someone in the family who could be described as a spendthrift. Perhaps you have a loved one with a drug or alcohol problem.

If you do in fact have someone on your inheritance list who is not good at handling his or her finances you could account for this by making this individual the beneficiary of a sentry trust.

Assets that have been conveyed into the trust are protected from the beneficiary’s creditors. The beneficiary can receive distributions from the trust in accordance with your wishes. However, he or she does not make decisions with regard to the principal.

You name a trustee who manages the funds. This can be a person known to you, or a professional entity like a trust company.

When you use a bank or a trust company you don’t have to worry about the trustee passing away.

To provide for someone with personal problems you could create an incentive trust. With these trusts you include incentives that must be met before distributions are given out.

Children From Former Marriages

Another circumstance that would require a particular brand of estate planning is that of the blended family situation. If you get remarried and you don’t take steps to protect the interests of your children from previous marriages you are taking quite a risk.

For that matter, if you don’t do anything to protect your own interests you are taking a huge risk because over 60% of second marriages do not last.

It is possible to protect yourself and your children while still providing for your new spouse in the event of your passing if you implement the appropriate strategies.

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People sometimes take on do-it-yourself projects to save money. Unfortunately, in some cases these efforts wind up costing more money in the long run. This certainly comes into play when you’re talking about estate planning.

There are certain simple steps that you can take to arrange for the transfer of assets to others. Joint ownership is one of them.

Sometimes called the “poor man’s estate plan” with joint ownership you simply add another person as a co-owner of your property. This could be your home, your bank accounts, and your brokerage accounts.

When you die there is just one owner left, and this person would still own the property after you die. This is the long and short of it.

The truth is that this poor man’s estate plan can actually make you poorer.

What happens if the co-owner decides to utilize the funds for his or her own purposes? The answer is that you can do nothing about it because this person owns these resources just as much as you do.

What if someone sues the co-owner? While you are still alive you may watch much of it go down the drain if the co-owner is the target of a lawsuit or if he or she is involved in a messy divorce. Creditors of the co-owner could also target these funds.

What if you tell the co-owner to distribute the money among family members and he or she doesn’t do it? Once again, there is nothing to stop the remaining owner from doing anything he or she wants to do with the money.

When you consider how easy it is to plan your estate properly with the benefit of legal counsel buying into risky notions like joint ownership is probably not a good idea.

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Parents are used to caring for their children when they are young and then subsequently providing them with advice and guidance when they grow up. Along the way your parents may have found it to be inappropriate and unnecessary to share the details of their financial situation with you.

You may have a general idea about their earnings and make certain assumptions. However, you have no way of knowing if your assumptions are in fact in the ballpark unless your parents communicate with you about financial matters.

As your parents get older a role reversal may be on the way. 70% of us will need long-term-care someday. 45% of people who are at least 85 suffer from Alzheimer’s disease.

If you have parents who are in nursing homes you are obviously going to play a significant role in their lives. If they were to become incapacitated someone is going to have to make decisions on their behalf.

When it comes to estate planning someone is going to have to administer the estate.

There are some very important, practical matters that should logically be discussed. If you get the impression that your parents are never going to broach the subject with you perhaps it is up to you to break the ice.

Is this a comfortable conversation to have with your parents? For some it could be perfectly comfortable. For others it may be quite challenging.

However, somehow you must find a way to discuss the eventualities of aging as a family so that everyone is on the same page as your parents pass through their twilight years.

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Surveys that have been conducted over the last few years are consistently indicating that many members of the baby boomer generation are not financially confident as their preferred retirement dates approach.

A lot of people who are feeling as though they may not be able to retire soon as they would like to and cite the economic crisis that came to a head in 2008 as the primary reason why they have gotten off-track.

Others were never really on track in the first place. It takes careful advance planning to put together the resources that you need to accumulate a financial underpinning to fortify your position during your senior years.

Simply reaching the age of Social Security eligibility is not a flashing green light that welcomes you to retirement.

When you look at the numbers you see that Social Security alone is not going to be enough to live on comfortably if you have no other source of income and you are without any significant savings to draw from. As of December of 2012 the average monthly Social Security benefit was $1262 per month.

It would certainly be tough to try to get by on around 300 bucks a week. Plus, when you look at this you have to understand the fact that there are out-of-pocket costs for people who are enrolled in Medicare including monthly Medicare Part B premiums that are deducted from your Social Security payout.

Even the maximum monthly benefit of $2533 for someone who has reached the age of full benefit eligibility (this is the maximum in 2013) is far from a king’s ransom.

Depending on your age and your earning power you may be able to develop a financial plan that does in fact lead to a comfortable retirement. If you could use some input from a professional contact our firm to set up a retirement planning consultation.

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Nobody likes to pay taxes, but it is especially troubling when you have to pay taxes on top of taxes. This is something that the family of the recently deceased actor James Gandolfini is facing.

Throughout his life the departed star of The Sopranos paid taxes on his income, which was considerable, so the taxes were certainly no drop in the bucket. Now estate taxes are being imposed due to the event of his death.

Gandolfini lived here in New York, so his estate is subject to the New York state estate tax. There is a $1 million exclusion, and the top rate is 16%.

The federal estate tax is also a factor. The federal exclusion is $5.25 million, and the maximum rate is 40%.

When you tally up these percentages you see that they exceed 50% of the man’s estate.

There are steps that can be taken to preserve wealth if you are in a position like this, but according to reports Gandolfini, for the most part, did not take them. About 80 percent of his $70 million estate is going to be subject to estate taxes.

This is going to result in tax bills totaling around $30 million.

The actor had an estate plan in place that was not constructed well with regard to tax efficiency. Perhaps he thought that he would give the matter more attention at a later date. He was only 51 when he died.

However, there are no guarantees with regard to lifespans. The wise course of action is to be prepared for anything while you hope for the best. If you hope for the best without making the appropriate preparations your family may wind up paying a hefty price.

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If you go online you can find instructions on how to do various things. In many cases you have to pay a premium price to obtain this information, and who knows how accurate or useful it may be?

That having been stated there are websites out there that sell do-it-yourself estate planning documents like living trusts and simple wills.

Is it wise to arrange for the transfer of everything you have earned throughout your life to your loved ones using a worksheet or download that you found on the Internet?

The magazine Consumer Reports tackled this subject last year. They came away advising against do-it-yourself estate planning for a number of different reasons.

One of the problems with DIY estate planning notions is the fact that you may choose a last will or living trust when in fact a different legal device may have been better for you given your unique circumstances. In addition to this, there are other things to consider when you are planning your estate.

These would include making preparations for possible incapacity as an elder. Preparing for potential long-term care costs is another consideration.

If you’re interested in gaining an in-depth understanding of the dangers of DIY estate planning we can help. Our firm is offering a free special report that explains everything in detail.

Take a moment to download this report and review it at your convenience. Arranging for asset transfers to your loved ones after you pass away is a serious matter, and you should not take it lightly.

To download the report, click here: DIY Estate Planning Dangers.

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There are a lot of different legal devices that are used in estate planning. People sometimes harbor misconceptions about them based on assumptions. We would like to shed some light on three common estate planning instruments here.

The most common estate planning device is the simple last will. This document is typically used to arrange for future asset transfers and to name a guardian for minor children. The thing that is less than ideal about this arrangement is that probate enters the picture when you transfer assets using a last will.

Probate is the legal process of estate administration that takes place under the auspices of the Surrogate’s Court. There is nothing inherently wrong with this process. However, from a purely practical perspective the heirs to the estate don’t receive their inheritances until this process has run its course.

There are ways to arrange for asset transfers outside of probate, and some people prefer this efficiency.

Living Trusts

A living trust is a very commonly utilized probate avoidance tool. You convey assets into the trust and name a trustee who would manage the funds after your death along with a beneficiary or beneficiaries who would receive financial distributions.

These distributions would be made in accordance with your wishes as stated in the trust agreement. These transfers take place outside of the probate process.

Living Wills

This is where the confusion sometimes enters the picture. Some people hear about the things that a living trust accomplishes. They know that a simple will can be used to transfer assets, so they assume that living wills do the same.

In fact, a living will is an advance health care directive. With this document you state your preferences regarding whether or not you would want artificial life-support measures utilized to keep you alive in the event of your incapacitation.

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The Supreme Court recently ruled on a case that centered around an estate planning matter. Regardless of how you feel about the subject of same-sex marriage this is a ruling that is certainly of interest to people in the estate planning community because it has practical implications.

A New York woman named Edith Windsor was presented with an estate tax bill after she inherited assets from her same-sex spouse Thea Spyer back in 2009. The two were married in Canada a couple of years prior to Spyer’s death. It should be noted that they had been together for decades prior to the marriage.

The bone of contention is the fact that there is an unlimited marital estate tax deduction. If you are heterosexual and you are legally married you can leave any amount of money to your spouse without facing any estate tax liability.

Here in New York same-sex marriages are legal as we all know. There is an estate tax on the state level here. People who are legally married in the state of New York enjoy an unlimited New York State estate tax marital deduction regardless of the gender of the spouses.

Because of provisions contained within the Defense of Marriage Act the federal government did not acknowledge same-sex marriages.

That is, until this recent Supreme Court decision was handed down. A slim majority of the justices found in favor of Windsor. As a result, the federal government will now recognize same-sex marriages that are sanctioned in states that allow them. Federal benefits that are afforded to spouses will now be available to same-sex spouses as well as heterosexual married couples.

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Intelligent retirement planning is going to include anticipating the expenses that you may incur during your twilight years. It is not uncommon for people to require living assistance late in their lives, and this can be quite expensive.

So you think that you will be eligible for Medicare when the time comes and you’re not worried about it? The fact is that Medicare won’t pay for long-term care.

A very good source of information on long-term care costs is the annual survey that is put out by the MetLife Mature Market Institute. The 2012 survey found that in the state of New York the average daily charge for a private room in a nursing home was $368.

If you multiply this figure by the number of days in a year you’re looking at an annual expense of over $134,000. The reality is that most people spend multiple years in nursing homes.

Long-term care communities are quite expensive as well. In New York in 2012 the average monthly charge for an assisted living facility was $4011, which is over $48,000 per year.

When you are budgeting for the future it is important to take these potential expenses into account. According to the United States Department of Health and Human Services the majority of people who are fortunate enough to reach the age of 65 will need living assistance eventually.

If you are interested in exploring your options with regard to how you may be able to address these costs, you should discuss your personal situation with a licensed elder law attorney.