Working with Seniors: Health, Financial, and Social Issues
Chapter 15: Estate Planning
Karl and Kathy Edwards are retired schoolteachers. They have been investing in real estate since they were married. In addition to their pensions, their rental income has helped them enjoy a comfortable lifestyle. Much to their amazement, Karl and Kathy have acquired a net worth of almost $3.5 million. Karl says, “At this point in my life I want to spend more time with my family, sailing my boat, and traveling with my wife. I would like to sell some or all of our properties.” However, the Edwards’ accountant has told them that the sale of their properties would result in high income taxes because of large capital gains. In addition, their financial advisor has told them that this could result in a tax problem when they die. Karl says, “We want to make sure that our kids and grandchildren inherit as much of our net worth as possible.”
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In contrast, Don and Barbara Wright have not been able to acquire many assets outside of their home. They have been married for more than 20 years. They both have two adult children from previous marriages. Don’s son, Henry, has been helping them financially, which they greatly appreciate. Barbara’s daughter, Verla, visits regularly, helping Don and Barbara with the housekeeping and enlisting her husband when the house needs repair.
When Don and Barbara bought their home, they were told to title it in joint tenancy so the survivor would get it when the first of them died. Barbara says, “What we want, however, is that after our deaths, all our children share in the value of our home. We would also like to give a little more of our estate to Henry and Verla in appreciation of the extra help they have given us.”
Death and taxes and childbirth! There’s never any convenient time for any of them.
-- Margaret Mitchell, Gone with the Wind
Introduction
At first glance, the Edwards and the Wrights seem to have very different life situations. However, despite the difference in the amount of assets they own, both couples need estate plans. They need to plan both for the possibility they might become incapacitated and for the distribution of their property after they die.
Your clients don’t need to own a large amount of property to need estate planning. Because estate plans cover lifetime health and financial needs and the legacies they wish to leave, all adults should have one.
Many people are surprised to learn that lifetime planning is an important part of estate planning. When clients plan for their lifetime needs, the first step should be to address their current health and financial status—and how these might change over the course of their lives. For example, estate plans enable seniors to decide in advance how they want to be cared for and how they want their assets managed if they become incapacitated. And after clients’ deaths, estate plans provide instructions for the orderly distribution of their assets.
Another common misconception is that once an estate plan is in place, the planning process is over. However, almost any plan that deals with fundamental lifetime needs requires periodic review and updating, as discussed in Chapter 16, Financial Choices and Challenges for Seniors.
In this chapter, you will gain a basic understanding of fundamental estate planning terms and concepts, as well as common strategies and techniques that apply to the majority of seniors:
• Everyone has an estate plan, whether by choice or default.
• The number of nontraditional families are increasing, and traditional estate planning may affect them
• A comprehensive estate plan includes key components: non-probate titled property, a will, and several types of trusts and designated beneficiaries. In addition an estate planning attorney plays an important role.
• Seniors must plan for and manage the possibility of incapacity, a situation that may call for several types of powers of attorney, agent selection, and the use of guardians and conservators.
• Wills and the probate process involve a complicated mix of procedures and documents. You’ll need to know what is included or not in the probate process; the importance of personal assets; the role of the pour-over will and revocable and irrevocable trusts; and steps in selecting a personal representative or executor.
• There are several strategies for managing assets during a senior’s lifetime using trusts, and your clients should understand how trusts can operate as a transfer and management tool or as a tax-saving mechanism for estates. Family limited partnerships and other techniques efficiently transfer ownership of non-liquid assets, such as family businesses.
• Estate taxation and the components of the estate tax system pose another complex challenge. You’ll need to understand applicable exclusion amounts, property that is included in a taxable estate, and use of the unlimited marital deduction and various trusts to manage and reduce estate taxes.
• Seniors can benefit from lifetime gifting, so you’ll learn about the types of gifting, gift tax exclusions, the role of charitable contributions in reducing estate taxes, and various ways to make charitable contributions, including foundations, charitable gift annuities, charitable remainder trusts, family limited partnerships, and pooled income trusts.
This information will give you the tools to recognize the issues that have impact on your senior clients’ goals for their estates.
SCSA does not advocate any particular estate planning strategy. If you are not a professional estate planner, you should identify qualified estate attorneys and other professionals who can work with you to provide a comprehensive approach to your clients’ estate planning needs. You also might consider working with other types of attorneys; financial planners; life, health, and long-term care insurance professionals; home health care and Medicaid/Medicare specialists; and ministers or clergy.