Flexibility and Control:
The Two Keys to a Successful Estate Plan

Modern estate plans should be flexible to allow the survivor/s the ability to do tax planning or not, as necessary. There are several key provisions in the Internal Revenue Code that permit a survivor to make elections and choices that can have a substantial beneficial impact on the assets from a tax perspective. Plans should be drawn up to permit for these elections and choices to be part of the plan.

Basically, if one’s estate is too big, it will be subject to the federal estate tax. The problem now is we are not certain exactly what constitutes “too big”. The current exemption amount is 5 million per person. Now, this includes the death benefit on life insurance and retirement accounts. This exemption will drop to 1 million in 2013 if the law is not changed.

So what is one to do?

The short answer is to make sure that your documents are flexible to account for changes in circumstances and changes in the law. In this uncertain environment, we usually direct assets to go into a FAMILY TRUST that will be estate tax free, creditor proof, and guaranteed to stay in your family. Without it, the government may be entitled to a large amount of your money before they inherit. If the exemption drops to 1 million, then the survivor can get the rest free of trust or in a trust that will qualify for the unlimited marital deduction.

The next common objective clients often have is “control”. If an estate plan is not drawn up to ensure control stays in the family, then the court/s may have control of your assets. When courts are involved, legal fees and administrative expenses increase. Accordingly, most modern estate plans are made by informed people who choose using a revocable living trust to dispose of their assets. This way, a family member can be the trustee with little or no court oversight. Of course, the family member trustee has duties to the beneficiaries with regard to accountability and the like, but the prospect of unnecessary court control is avoided.

Contributed by: Mark F. Winn, J.D., Master of Laws, LL.M. in Estate Planning, is a local tax, asset protection and estate planning attorney.