LAW OFFICE OF JAMES D. STEIN, PC

New Year’s Resolution: Finally Set Up That Estate Plan!

1/10/2018

2018 is upon us. The time has come to put into practice the resolutions we made at the end of 2017. Most people resolve to exercise more and eat healthy. Maybe you have resolved to follow the lead of a friend or family member, or heed the advice of your financial planner or accountant, and finally set up an estate plan. Or maybe you just purchased a new home or have a new addition to the family, and want to make sure things are covered in case the unexpected happens. Whatever reason you may have for thinking about setting up an estate plan, 2018 is the year to finally get it done!
Below are just a few of the many reasons to finally get that estate plan set up:

You will be able to control what happens to your assets when you pass; if you die without a trust or will, the intestacy laws of California determine who receives your assets.
You can avoid the costs and hassle of probate with a trust-centered estate plan. Anyone leaving at least $150,000 in qualifying assets, with or without a will, must have their estate probated in California state court. This process takes at least several months, if not years in some cases, and both the executor and the probate attorney are allowed statutory compensation for handling the probate. For example, if your gross estate is valued at $1,000,000, under California law the executor and the probate attorney can be compensated $23,000 each!
If you become incapacitated, and are no longer able to make your own financial decisions, people you trust can take over the handling of your finances, and handle your finances the way you would want.
If at some point you are not able to make your own health decisions, people you trust are enabled to make your health decisions for you; and importantly, you can provide direction on what is to be done if you are suffering from an irreversible condition.
You can nominate the people you trust to be the guardians for your children if you are no longer able to care for your minor children, either because of incapacity or death.

And for those of you that may have an estate plan, but have not revised it or even looked at in 5, 10, or even 20 years, 2018 is the time to have your estate plan reviewed for any necessary changes and updates. Documents like financial powers of attorney and health care directives become stale, and financial institutions and healthcare givers are more reluctant to act under documents that were executed several years in the past. In addition, over the intervening years relationships may have changed, your children are now mature, responsible adults (hopefully!), and therefore you may want to update who will act as your successor trustee, executor, and financial and health care agents.
Estate plans drafted several years in the past should be reviewed and updated in light of the new Tax Cuts and Jobs Act recently passed by Congress and signed into law by President Trump. The Act doubles the amount of assets that a deceased person can leave to beneficiaries before the Federal estate tax applies ($11.2 million for a single person, $22.4 million for couples). Many older estate plans were structured with significantly lower estate tax exclusion amounts in mind, and may result in significant, and completely avoidable, capital gains taxes. For example, many older estate plans direct that, upon the passing of a spouse, a bypass trust (also called a credit shelter trust) be funded with assets up to the exclusion amount (currently $11.2 million). Any assets in the bypass trust will receive a step-up in tax basis when the first spouse passes, but will not receive a step-up in tax basis when the surviving spouse passes. Given that the combined estate of most married couples is not more than $11.2 million, most couples with an outdated estate plan will see their entire estate placed in a bypass trust, and their beneficiaries will have a significant capital gains tax bill to pay when the surviving spouse passes. Such an unintended result is easily avoided by updating the estate plan.
In conclusion, whether you have never set up an estate plan, or set up an estate plan years ago and it is on a shelf covered in dust, make 2018 the year you finally act to make sure your affairs are in order.

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New Year’s Resolution: Finally Set Up That Estate Plan!

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