6. General Need For A Will
Importantly, despite all of these things, estate planning has never been just about mitigating taxes. A carefully conceived and drafted will is necessary for:
• Providing for the pre-planned distribution of assets upon death, including for the support of dependents and other heirs and beneficiaries;
• Providing for an executor to manage the estate;
• Appointing guardians for dependents; and
• Funding trusts to manage and distribute assets to heirs and beneficiaries.
None of these critical matters become less important merely because a federal estate tax is no longer imposed!
7. Avoiding Probate
Another important goal of estate planning is to avoid the delays and expenses associated with moving an estate through the probate process. Avoiding probate usually involves some combination of:
• Funding of revocable trusts;
• Making lifetime gifts;
• Establishing accounts that are “payable on death”; and
• Titling assets before death so that, when appropriate, they are held under designations such as “tenants by the entirety” or “joint tenants with right of survivorship.”
Again, these considerations will remain important even in the absence of an estate tax.
8. Beneficiary Designations
Estate taxes and probate courts aside, any estate planning exercise is incomplete if beneficiary provisions have not been reviewed and updated under the relevant wills and trusts and for all retirement accounts (IRAs and qualified retirement plans) and life insurance policies. Over the course of a lifetime, people often forget who their designated beneficiaries are and fail to update them despite changes precipitated by marriage, divorce, births, deaths and other events.
9. Health-Care Proxies And Durable Powers Of Attorney
A “health-care proxy” or “living will” remains as important as ever because people are living longer and because medical treatments have become more impactful and complex. These simple documents are essential for ensuring that a person and the individuals selected by that person can determine what medical treatments will be administered—or will not be—in the event of a medical emergency or crisis.
Like a health-care proxy, a “durable power of attorney” allows a person to decide in advance who will make important decisions if the person becomes incapacitated in the future. They function alongside health-care proxies to ensure that all decisions, even before an individual dies, are made by people trusted and carefully appointed by him or her.
10. Use Of Trusts And Other Vehicles To Sustain And Distribute Wealth
While the tax impact of trusts, family limited liability companies, family limited partnerships and other classic estate planning vehicles would be lessened with a repeal of the federal estate tax, these important structures nevertheless would remain relevant.
At a minimum, they enable people to sustain, manage and gradually distribute their wealth on an intergenerational level, allowing them to create lasting legacies and sustain the people and causes they care about most. These structures can also protect assets for future generations and even provide some state income tax savings opportunities.
11. Philanthropy
Some have argued that a repeal of the federal estate tax will diminish the incentive for people to distribute their wealth to charities. This may prove to be true, but regardless of the tax benefits associated with transferring wealth to charities, many will want their philanthropic work to continue, even after they die. Philanthropic planning has always been an integral consideration during the estate planning process, and it will remain an integral consideration in the future.
12. Education
Lastly, effective estate planning must always involve an educational process—not only for the subjects of the plan but for their families and loved ones. It is an opportunity not only to discuss finances but also to solidify shared values, address family issues and set a course for a lasting legacy.
Financial planners, lawyers, accountants and other advisors sometimes overemphasize the value of mitigating the federal estate tax when engaging in estate planning for their clients. This is understandable, as the estate tax savings associated with effective planning can be substantial. In the end, however, the federal estate tax is only one consideration among many in the estate planning process. Its potential repeal therefore will not diminish the importance of prudent, comprehensive estate planning.
Michael J. Nathanson, JD, LLM, is the chairman, CEO and president of The Colony Group, LLC.
Ian D. Barclay, CPA/PFS, is a managing director, Rocky Mountain Region, and co-president of Colony Sports and Entertainment at The Colony Group.
Cary P. Geller, MBA, CPA/PFS, CFP, AEP, is a managing director and senior financial counselor at The Colony Group.The Colony Group.