As with any other transaction of importance, it is always recommended that you seek the advice and care of an attorney when creating and implementing your estate plan but either out of laziness or financial inability, many Americans are still failing to plan for the protection of their assets. If you should fail to retain an estate planning attorney to work with you on your asset protection plan, at least follow the eight steps below and assure that your family isn’t left with nothing but a large pile of debt. As the old adage goes, if you fail to plan, you are in actuality planning to fail.
Step 1 – Sign a financial power of attorney.
A financial power of attorney designates an agent of your choosing to handle your financial affairs should you become incapacitated. This person can pay your bills, file your taxes, and manage your investment, retirement, and life insurance accounts. Without a financial power of attorney in place, your family would have to get court permission to step in which will cost them precious time and money.
Step 2 – Designate a health care surrogate.
A health care surrogate is basically a power of attorney for your personal well being. The surrogate will make health care decisions for you when you are unable to do so and will see to it that your living will is executed properly, so that the end-of-life measures that you choose are carried out to your specifications. Along with designating your health care surrogate, you should also prepare your living will.
Step 3 – Calculate your net worth.
Start by listing your largest assets and their current market value. This might include your home and any vehicles that you own outright. Next, you’ll want to add your more liquid assets, such as checking and savings accounts, cash, CDs or other investments such as retirement accounts. Add to that the current market value of any personal items that may be valued at more than $500. This number represents your total assets. Now, make a separate list of any major outstanding liabilities such as the balance on your mortgage or car loans. Add to that all of your personal liabilities such as credit cards, student loans, or any other debt you may owe. This number represents your total liabilities. If you subtract the total liabilities from the total assets and you will have your net worth. Keep this figure handy when speaking with your estate planning attorney, your financial advisor, and your accountant.
Step 4 – Review your beneficiaries.
Each year, you should review the beneficiary forms on file for all of your bank accounts, retirement accounts, and life insurance policies. These forms will determine who inherits most of your assets. If your spouse is listed as the beneficiary on any of these accounts, you should list your children as contingent beneficiaries in case anything should happen to your spouse. If your spouse dies before you, this will allow your children to put their inheritance into an inherited IRA and stretch out the distributions and tax deferral over the span of their entire lives. This could save your children thousands in tax liability.
Step 5 – Write a will, or update the one you have.
Without a will or living trust, the assets you worked so hard during your life to accumulate will be divided up the way the state you live in sees fit. If you have had a major life change since drafting your will (such as marriage, divorce, birth of a child, or death of an immediate family member), the dividing up of your estate could get very messy without an updated will. To protect your family further, you should talk to your estate planning attorney about the implementation of various trusts and tax shelters that can help preserve your wealth for future generations of your family.
Step 6 – Plan for state estate taxes.
Currently Florida does not collect a state estate tax, though things were different prior to January 1, 2005, when Florida, like many other states, collected a separate state estate tax in addition to the Federal estate tax, called a “pick up tax.” The pick up tax was equal to a portion of the overall federal estate tax bill. The federal estate tax is scheduled to completely disappear in 2010, but then the provisions of the Economic Growth and Tax Relief Reconciliation Act will sunset and the estate tax, along with the pick up tax, will come back on January 1, 2011. In 2011, there is a chance that your estate could be doubly taxed. The year 2010 will be an “uncapped” year in that the EGTRRA will no longer offer protection to those individuals with a net worth of under $1 million. With more families being exposed to the estate tax, it is imperative that you sit down with your estate planning attorney and talk about drafting some combination of a will and trusts as soon as possible.
Step 7 – Title your assets correctly.
A married couple whose wills set up a credit shelter trust in order to preserve the estate tax exemption of the first spouse to die without bankrupting the surviving spouse must keep their assets titled in the names of each spouse separately or they will not qualify for the benefit. If they instead wish to have their estates distributed through living trusts, they must remember to retitle their assets in the name of the trust. Failing to title your assets correctly may defeat any specific intentions you have when forming your asset protection plan. If you are uncertain of how to title your assets in a way to guarantee your desired result, you should contact your estate planning attorney and request a consultation.
Step 8 – Be generous.
Any individual can give up to $13,000 per year in cash, stock, or other property to any other individual without worrying about any gift or estate tax consequences. A person is also permitted to pay any other person’s college or private school tuition, as long as the check is sent directly to the school, in addition to the $13,000 gift allowance. The same is true for medical expenses, as long as the check is sent directly to the health care provider. You also have the ability to give up to $1 million to any person and receive a single lifetime gift tax exclusion. As the old saying goes, give and you shall receive.
While these eight steps will provide you with basic protection, for a true and complete asset protection plan, please contact your estate planning attorney and work together to create a plan for your future and the financial future of your family for generations to come.