Estate Planning

Rebecca Zung-Clough and Deborah L. Russell take a look at the most common estate planning mistakes and the documents everyone should have.

Just hearing the phrase “estate planning” can bring on the “Ostrich Syndrome.” We feel compelled to stick our head in the sand until the feeling passes. This is an understandable reaction given the constant change in this area of the law over the past several years. 2010 was no exception. Even estate planning professionals were surprised by the bill signed into law on December 17, 2010.

Here are some highlights of the new law:

  • The exemption amounts for gift, estate and generation-skipping transfer taxes have been increased to $5 million. This increase in the exemption amount can effectively “disinherit” a surviving spouse if an estate plan calls for an outright distribution of the exemption amount to descendants.

  • The top tax rate for gift, estate and generation-skipping transfer taxes is now 35 percent.

  • “Portability” now allows the surviving spouse to take advantage of the unused portion of a deceased spouse’s $5 million estate tax exemption.

  • Although this new law is favorable to taxpayers and will allow the majority of estates to pass to heirs free of any transfer taxes, this law expires on December 31, 2012. Absent additional legislation, the old estate tax exemption of $1 million will be reinstated with the highest estate tax rate of 55 percent.

The most common mistakes in estate planning are usually omissions, such as:

  • Failing to coordinate ownership of your assets with your estate plan.

  • Failing to properly designate a beneficiary of an IRA. By default, the IRA may be paid to your estate with unfavorable income tax consequences.

  • Failing to plan for the state estate tax that may be assessed on the death of the spouse first to die for out-of-state property. Although Florida does not have an estate tax, there are 22 states that have implemented a separate state estate tax. Real property is always subject to estate taxation by the state where the property is located.

  • Failing to have a document in place that will allow your healthcare providers to communicate with your family members.

  • Failing to help protect your child’s inheritance from future taxation and the claims of creditors. By giving your child his or her inheritance in trust, you can protect all or a portion of the property from all future transfer taxes at the federal and state level. You can also provide a measure of protection from creditors’ claims that is not available with an outright distribution.

So what are the estate planning documents that everyone should have? To provide for the management of your healthcare and property, while minimizing the emotional and financial cost to your family, the following documents are recommended:

  • Advance Directive: the combination of a living will and appointment of a healthcare surrogate.

  • Durable General Power of Attorney: allows your designated agent to handle your financial affairs.

  • HIPAA Waiver: names those individuals to whom your protected healthcare information may be released.

  • Will and/or Revocable Trust: directs the distribution of your assets in the most tax efficient manner. Although tax planning can be achieved with either a Will or a Revocable Trust, the Revocable Trust provides additional benefits that are not provided by Will. By funding your Revocable Trust with your assets, you can be protected from a guardianship proceeding. In the event you were to become incapacitated, your successor Trustee, appointed by you in your trust agreement, would “step into your shoes” to manage your assets. Additionally, upon your death the assets in the trust would avoid the probate proceeding. Although the cost of avoiding probate is sometimes exaggerated, a Revocable Trust can reduce the cost of administering your estate.

A thorough discussion with your attorney and your financial advisor will allow you to structure a plan that is individualized to your particular needs. If you have postponed your estate planning because you are not ready to discuss what happens when you die, think about what would happen if you were to become incapacitated. Who would you want to be making important decisions on your behalf, someone chosen by you or a court-appointed professional guardian? The bottom line is: Don’t find yourself stricken with a bad case of “Ostrich Syndrome”!


Rebecca Zung-Clough, a former Family Law Attorney, is currently a Financial Advisor at Morgan Stanley Smith Barney.

Deborah L. Russell, Esq. is a principal at Cummings & Lockwood, LLC in Naples

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