Top tips for Estate Planning


Breaking down the essential documents and tax ramifications related to planning your estate

“Why do I need a will ? Everything is in joint name and there will just be another legal fee. Those lawyers are all crooks anyway.” A not uncommon reaction when the question of estate planning is brought up.

I recommend that the client execute three or four documents in the basic estate plan: the will, the power of attorney, a living will or an advanced health care directive. The terminology of these latter two documents varies, depending on the state where one lives. A will tells the world who gets property in your name and is probated by the surrogate; the power-of- attorney (PA) is a two-page document that allows you (the principal) to appoint somebody ( frequently a spouse) to act on your behalf in financial matters (the attorney-in-fact.)

You can make decisions too. But you might be out of the country or on vacation. Make a dozen copies of this executed document. If the principal executing this PA is suddenly incapacitated, the attorney-in-fact can transfer or withdraw funds, buy and sell property and do just about anything financially. You can always revoke this PA immediately. It’s a crime for the attorney-in-fact to act after that.

Living Will

A living will, which is not probated—nor will it ever see a court house—is signed by you before a notary. You designate someone to act for you (normally while you’re in a hospital) regarding your health and physical condition. He or she can OK medical procedures and in general look after your health.

This legal form of advanced healthcare varies from state to state. Sometimes a jurisdiction refines this living will, by allowing you to make specific decisions while you are in extremis. To put it bluntly—you have the power to “pull the plug.” If two doctors say that you won’t recover at all for example, you may choose to suspend medical treatment; if you’re in a coma for three months, you can direct that medical treatment be stopped; if you’re declared brain dead—stop treatment. Can’t breathe without a respirator for one month?  Turn it off. You alone have the power under this legal directive to say, “enough!”

In today’s world of medicine, where human life is so precious, the paramount consideration is still to prolong life—even without hope for recovery.

Death Taxes

Many people are confused about so-called “death taxes.” Let me point out the difference between estate tax (ET) and inheritance tax (IT), the two types which may be imposed by the federal and state government on an estate. I can most easily explain the difference by way of example. Mr. Smith (the person who is the decedent) has a taxable estate of four million dollars. Nowadays, with a $5.3 million federal estate tax exemption, he wouldn’t have to pay any federal estate tax.

The legal field of Elder Law is dedicated to providing senior citizens—particularly the infirm—with a legal path to keep the assets that they have worked a lifetime to accumulate.

He might have to pay a state inheritance or estate tax—depending on the state where he is a resident. An estate tax is one based on the $4 million taken as a whole. Rates are universally graduated on either form of tax—ET or IT (e.g., 1% on the first $10,000; 2% on the next $50,000; 3% on the next $100,000; 4% on the next $500,000; 5% on the remainder.

Mr. Smith has five children, all over 18 years of age. He is not married. He divides his estate equally among all five children. Let’s assume that the IT rates are the same as the state ET. Therefore each child receives about $800,000. Under an Inheritance tax, each child would be responsible for about $27,000+ in tax. Should there be an estate tax on the $4 million, the result would be a whopping $190,000+, as opposed to the total $125,000+ under an inheritance tax.

As death taxes are less important to most of us than they were a dozen years ago, a principal concern to many aging people is the total depletion of all of their possessions by a nursing home. These institutions can easily cost over $50,000 per month for round the clock care. A relatively decent life savings of $500,000 can dwindle away in less than a year. The elderly person is put into the following dilemma: he or she can keep their assets; hope that they stay healthy and not be a burden to their loved ones—or they can give their assets away and hope that three years will pass before they are forced to enter a nursing home. Most of these facilities are well run and well staffed where the elderly are treated decently. A very few aren’t. The legal field of Elder Law is dedicated to providing senior citizens—particularly the infirm—with a legal path to keep the assets that they have worked a lifetime to accumulate, or at least pass these assets down to the objects of their bounty.

The basic rule of thumb is that all property given away by one of these individuals within three years of entering the home be returned by the donee before the institution grants admission. To put it bluntly: If senior citizen X wishes to enter a nursing home gratis in September 2016, he or she must have divested themselves of all their assets by September 2013. There is a more complicated method of calculation, and I urge anyone contemplating entrance into a facility for the elderly consult a specialist in Elder Law.


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Robert Woolsey

Robert Woolsey is an author and a former Trusts and Estates Attorney.

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