Four problems to avoid when creating an estate plan

By Mark F. Winn CONTRIBUTOR

Creating an estate plan is an opportunity to make sure you will avoid some big problems for you and your loved ones. The four main problems to avoid are 1. Unnecessary court involvement, related costs, and lack of privacy; 2. Family conflict; 3. Taxes; and 4. Loss to in-laws and other creditors.

Unnecessary court involvement, related costs, and lack of privacy can easily be avoided by using powers of attorney (health and financial) and private trust agreements. With these legal instruments, you can spare your family and loved ones from having to endure unnecessary court involvement.

Your privacy can be protected and costs of administration can be substantially reduced. One of the best ways to transfer property is by using private trust agreements so the assets do not have to go through court supervised administration, e.g., probate.

Family conflict can easily be avoided if care is taken to determine who serves as a fiduciary, to what extent they must report their activity, and to what extent they are to be paid, if anything. Among family, we usually suggest they do not get paid. If they get paid, it is income for income tax purposes and it can create resentment from siblings.

Many taxes can easily be avoided. Here, we are mostly concerned with maximum deferral of income taxes on retirement accounts. Also, we seek to avoid estate taxes. With a little care, we can easily structure affairs to avoid, and/or defer, these taxes.

Loss to in-laws and other creditors can be easily avoided for your children by leaving their share to them in a trust. If you leave assets to a loved one “in trust” they can be the trustee and the assets can be protected from lawsuits, protected from estate taxes in child’s estate and protected form loss if your child gets sued or divorced.

Let us assume, for example, Jack and Jill just moved here from Michigan and they have two children: Amy and Matt.

Amy is married to Joe and they have two children, Liz and Frank.

Matt is married to Liz and hey have one child, Kelly, who is disabled and receiving government benefits.

Jack and Jill have a timeshare in Arizona. They want to avoid all of the above problems and have concerns about Kelly inheriting because it could jeopardize her government benefits.

Also, they want to make sure Joe never gets a penny of what they might leave to Amy, and that Liz never gets a penny of what they might leave to Matt. What should they do?

They should create an estate plan that uses private family agreements (revocable trusts) and powers of attorney, and one that leaves assets to their children “in trusts” with remainder to their children.

Their trust should direct that, if a beneficiary who inherits is receiving government benefits, their share shall be held in a special needs trust for their benefit, to supplement benefits they get. Also, their trust will be protected from most lawsuits. Because of the trusts, no unnecessary probate court costs and fees will accrue.

Good planning avoids problems. Avoiding problems and protecting what’s yours in advance gives you peace of mind.

Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwin-

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