Armed with a solid estate plan laid down well before the inevitability of death, individuals can protect their assets, properties and heirs from unnecessary taxes, creditors and even unscrupulous people.
At a webinar held February 27, Michael T. Lahti, a partner at the 200-year-old law firm Fletcher Tilton in Massachusetts, laid down the essential strategies that financial advisors and their clients can follow to keep their families out of probate court, reduce tax payouts to the government and even protect their assets from nursing home costs.
In Lahti’s view, proper estate planning means delivering one’s estate to the people one wants, when one wants (whether that time is while living, upon death or after death) and in the way in which one wants, whether outright or through a trust.
While a basic estate plan is better than nothing, Lahti said it is still a will-centered plan. “And a will is a ticket to probate,” he said, adding that probating a will upon death creates unnecessary delays, expenses and publicity.
“So, how do you get what you have…to whom you want…when you want…the way you want… efficiently…while maintaining control?” he asked the webinar audience before outlining several steps.
Revocable Living Trust
The centerpiece of a solid estate plan is a revocable living trust said Lahti, a trust and estate attorney and chair of Fletcher Tilton’s elder law practice group. While similar to a will, a revocable trust is a better document that avoids probate, delays, expenses and unpleasant publicity.
This revocable living trust serves as an altar ego, or stand-by device, that can help heirs curb the cost of estate taxes, the so-called death taxes. The creator of the trust remains in control during his or her lifetime and the trust can be amended and/or revoked. “During your lifetime, it’s business as usual. You are in control,” Lahti said.
Ancillary Documents
In addition, estate planning includes several important ancillary documents: a general, durable power of attorney; a health care proxy: a living will and a HIPAA release. [The Health Insurance Portability and Accountability Act of 1996 is a federal law that took affect in 1996 and created national standards to protect sensitive patient health information from being disclosed without the patient’s consent or knowledge.]
Repositioning Assets
Effective estate planning also includes repositioning one’s assets to work with the trust. This means the creator of the trust must place all assets, such as the title of the house, banks accounts and brokerage accounts, in the name of the trust. “If not, you are wasting your money,” he added.
A trust can also be used to minimize estate taxes. He called the wills that married couples frequently complete right after marrying “I love you wills.” These wills are poor tax-planning documents as they leave the assets of the deceased spouse directly to the other spouse and use up the martial deduction. A better option, said Lahti, is a trust that, when the husband dies, leaves the assets for the benefit of the wife. That means the wife controls the money but is not taxed for death taxes.
He urged audience members to place all their appropriate assets in a trust and to update the power of attorney every three years to insure it keeps up with changing laws.
Outright Distributions
Lahti urged caution when giving outright distributions to several categories of beneficiaries:
- Young beneficiaries.
- Elderly beneficiaries.
- Beneficiaries with substance-abuse issues.
- Beneficiaries who cannot manage money.
- Beneficiaries on government benefits.
One option is to leave assets instead to a beneficiary-trusted trust. With this legal device, the beneficiary controls the investment and has use of the assets, but doesn’t own the assets. Legal “walls” are built to provide enhanced protection.
Independent trusts could be another appropriate option. These mechanisms can protect family members from losing their inheritance to creditors and predators through poor financial decisions and taxes. It can also ensure assets are kept within a family’s blood lines. For example, if an adult child dies and their spouse remarries, a revocable trust can insure assets are directed to the grandchildren.
“Living trusts allow you to control where the assets go and how they will be used,” Lahti added.
Irrevocable Trusts
Regarding the protection of assets from costly nursing home care, Lahti said an irrevocable trust can be used if completed five years ahead of a person’s placement in a nursing home. “You don’t want to be in the crisis … you want to be ahead of the crisis,” he said, noting that the use of an irrevocable trust — is not for everyone. The person who creates an irrevocable trust (the grantor) cannot amend or dissolve it except under very limited circumstances.
Paula L. Green is a New York City-based freelance journalist with more than three decades of reporting and editing experience that spans coverage of international business and finance issues to murders and politics at the Jersey Shore to presidential press conferences in Argentina and Mexico. She can be contacted by plgreen12004@gmail.com.
