The Law Offices of John P. McDonnell offers an estate planning lawyer for clients that need qualified and experienced legal guidance.
Some level of estate planning is necessary for virtually everyone, particularly successful individuals, because it is a trite but true phrase that the two certainties in life are death and taxes. You never have to worry about your estate alone, contact an estate planning lawyer for all of your estate planning needs.
The “minimum” plan, that almost everyone could use, consists of four items, (1) a “living trust,” (2) a “pour-over” will; (3) a power of attorney for finances, and (4) a power of attorney for health care (in California, it is an Advance Health Care Directive.” But none of these items really relates to tax planning. The Living Trust is used primarily to avoid the costs of probate, mainly for owners of real estate. Since it is a “revocable” trust, the IRS disregards it, and items that pass to your heirs through the Living Trust will be treated for Estate Tax purposes the same as items passing by will. The Living Trust is designed to be the main testamentary document (controlling who will receive bequests and how much) and replaces the traditional will. So the “pour-over” will is designed to make sure any assets that you neglected to put into the Living Trust will be “poured” into the Trust by your will.
The two powers of attorney deal with problems that arise while you are alive and aging. The POA for finances anoints a person to handle your financial matters if you become incapable of doing it yourself. The Advance Health Care Directive is actually a set of written instructions on how you wish to be treated if you become incapacitated and unable to make decisions on your treatment. It also addresses the “end of life” issue when a doctor or hospital is directed to withhold treatment.
These are all very important planning documents, but so far, not a dime has been saved in taxes. Of course, most people don’t need to worry about saving Estate Taxes, because a husband and wife can currently have an estate of almost $11 million that can pass without estate taxes to their heirs. However, there are important income tax planning issues for successful individuals as they approach retirement. Today, most people are holding their retirement savings in a 401(k) or “traditional” IRA. The owner of these vehicles must begin taking “required minimum distributions” (which are subject to income tax) at age 70 and a half. There are important planning options (some including “see-through” trusts) on how to “stretch” these distributions to minimize the impact of income taxes. There are also circumstances in which an individual might wish to “convert” the IRA or 401(k) to a ROTH IRA. The is a tax cost to the conversion, but the distributions from the ROTH IRA are never subject to income tax.
But the Estate Tax is still the major concern for the wealthiest of individuals. Once the exemption is exceeded, the tax hits hard. A Taxable Estate of just $100,001 will pay a 30% tax and this increases quickly so that the maximum 40% rate hits everything over $1 million. Estate planners have developed many strategies for reducing the Taxable Estate and saving taxes. For example “Grantor Retained” trusts, primarily the Grantor Retained Annuity Trust (GRAT) and the Grantor Retained Unitrust (GRUT) are important devices for removing highly appreciated assets from the Taxable Estate. Owners of valuable family-owned businesses might consider many “estate freezing” options or a Family Limited Partnership to transfer ownership to the next generation at a lower tax cost. Each family is different, and a full “estate plan” must be tailored to each specific situation. Contact John P. McDonnell to set up an initial consultation.