Estate Planning New Year’s Resolutions By An Estate Planner
Martin Shenkman Contributor Forbes.com
So, we estate planners have perfect estate and financial plans and nary a worry. Not!
Most professionals are like the proverbial shoemaker with the barefoot children. I presented a trust planning lecture in New York City a few weeks ago. As everyone knows there are lots of smart lawyers, CPAs and financial advisers in the Big Apple. So, I polled the illustrious group asking how many had SLATs or DAPTs to protect themselves? The only hands that were raised were mine and my co-speakers, Jonathan Blattmachr, Esq. Why is that? Shouldn’t we practitioners practice what we preach? We should.
So, just like you, after practicing up on auld lang syne, and buying official CNN cardboard cut-outs of Anderson Cooper and Andy Cohen to properly celebrate the New Year, I paused to take stock of some of the steps I might take for the coming year, and resolutions I might make for my planning.
First, let’s translate the alphabet soup above for you mere estate planning neophytes. A SLAT is a spousal lifetime access trust and is common asset protection and tax planning technique for married couples. A DAPT is a domestic asset protection trust and a type of trust you can create in 18 states that might remove assets from your estate and the reach of your creditors but permit you to benefit from them. In many cases, variations of each technique might be used to perhaps enhance the likelihood of success or to achieve other goals. For example, SLATs can be structured as non-grantor trusts so that you can garner an array of income tax benefits under the new tax laws. For a video explaining this in more detail click here. DAPTs come in many flavors, e.g. so-called “hybrid-DAPTs” where you have not initially named a beneficiary but added in the future.
You don’t need to be a zillionaire to need SLATs and DAPTs. Doctors looking to protect assets from malpractice claims might use them. Anyone sweating the loss of itemized deductions under the new tax laws might benefit handsomely.
If you’re wealthy enough that you might be subject to an estate tax SLATs DAPTs are great tools (among other techniques, you might consider). If you’re not that wealthy but could be subject to an estate tax if the Blue Wave continues in the next election you might well want to use SLATs and/or DAPTs to use some of the current high but temporary estate tax exemption. Ultra-high net worth folks can use a combination of these types of trusts in sophisticated plans to shift billions of wealth. But that, unfortunately, is not relevant to my New Year’s resolutions.
So, what benefit is it for an adviser to share some of his New Year’s planning resolutions?
Perhaps, if nothing else, it will make everyone else feel better knowing even the folks that do this stuff for a living have “to do” lists and New Year’s resolutions. Realizing that might make it less stressful for you to tackle your own list. We all have lists.
The second key point is that my list is unique to me, but your list should be unique to you. Everyone is different and copying a financial planning New Year’s resolution list off a website is rather unlikely to suit anyone’s goals. Those lists at most might be a starting point to determine what you need for you and your loved ones. Since my list might not do much for you, I’ll explain broader lessons from what I’m trying to tackle.
If you have professional advisers get your team together and develop your 2019 resolution list. If you don’t have a team but should, then that should be resolution number 1. If you are young and starting out and cannot afford professional advisers, get friends or family to vet your list because it is difficult to be objective about your own planning “stuff.” The key is getting other opinions, and where possible and affordable, professional input on what you should be doing in 2019.
My Resolution: So that leads into my first resolution. I intend to have a meeting with our CPA (Hal call me), insurance consultant, fiduciaries, and others important to our plan. We need to explore bringing children into this meeting, or at least to understand more of what we’ve done and why (kids are you reading this?).
General Resolution: You should resolve to inform, or even involve, heirs and others to the extent appropriate in the coming year. If you don’t have a team, form one. Include the functional expertise your plan needs (and you may not know that until you start meeting with the team). The newest member of many teams for aging clients or those with a health challenge is a care manager. So, your team perhaps should not just be limited your CPA and wealth adviser.
My Resolution: Let’s try an easy one; A buddy named Ron, insisted I buy RFID blocking sleeves for my credit cards. These are supposed to shield credit cards from electronic pickpocketing. Since credit cards, passports, and driver’s licenses may have embedded radio frequency identification chips, protecting them from RFID skimming. This is worthy of a New Year’s resolution to get some momentum going. Also, we all tend to neglect the little things and shouldn’t. Small planning steps can be important.
General Resolution: Is your laptop encrypted? If you have your financial data and estate planning documents on it, it should be. That might sound like a little thing too but is in theme with RFID sleeves. You should resolve in the coming year to address several security steps for your planning, even the little ones.
My Resolution: While we’re on easy ones, I need to get my estate planning documents in a cloud-based portal that is easily accessible. We use a cloud service from Sharefile to hold PDFs of client documents in a private vault that the client can set a password for and share with appropriate family members and advisers. It also has an App that enables you to access your documents anywhere. Think emergency room at the hospital. How do you get your health care proxy fast at 2 am Christmas eve? And of course, while we’ve done this for clients, … did I mention something about shoemakers with barefoot children?
General Resolution: Do you have copies of all key estate and financial planning (e.g. beneficiary designations) accessible in an emergency? Do you know the location of your original documents (hint – a safe deposit box is not a great place)? Resolve to have electronic copies of all key documents disseminated to appropriate advisers, family, and fiduciaries. And yes, this presumes you have all key documents in place and that they have been updated to reflect the changes of the 2017 tax act. You do, don’t you?
My Resolution: Decant our irrevocable trusts into newer trusts. My trusts are getting old and creaky, kinda like me, and they could use a facelift. Laws change, planning techniques get more sophisticated. There are lots of new drafting and safety features that can be added since my trusts were last addressed in 2012. I want to form a new LLC to house the trust protectors. Also, to the extent feasible, we’ll explore changing the people we’ve named in various capacities to minimize or eliminate contacts in my home state. These steps might enhance the likelihood of the laws of the states where the trusts are located applying.
General Resolution: It is common planning to create trusts in states with more favorable laws. Delaware, Alaska, South Dakota and Nevada might be the most popular, but there are others. If your trusts are all in your home state you might be losing income tax benefits, asset protection benefits, and more. If you have any trusts that are more than a few years old, resolve in the coming year to meet with your advisers and explore the options to enhance them. If you’re wealthy and have not used your exemption amount, resolve to talk to your advisers in 2019 about estate tax planning steps to do so. 2019 is the year to plan in case the 2020 election results in harsher revisions to the estate tax.
My Resolution: Revisit our estate plan, and in particular trustees. We have a blended family like so many of you, and balancing the myriad of factors, the pros/cons of integrating institutional trustees into the mix, weighing what is best for everyone, is not only a Solomon-like task, but one that must be revisited periodically. We’re exploring the idea of replacing a single trust protector (a person who holds certain powers, such as the right to remove and replace trustees) with a committee of three to provide better checks and balances.
General Resolution: Modern trust drafting can provide an array of options for structuring trusts to best meet your needs. Document generation software makes these permutations both possible and affordable. Given the complexity of family structures, liability exposure, and so many other planning variables, getting a more tailored option for your planning documents can accomplish your goals and protect those you love. Resolve in the coming year to revisit your planning and make it work for you. Think outside the trust box.
My Resolution: Property, casualty, and liability coverage review. This stuff should be reviewed every few years, and like most of you, it’s been longer. I’m not sure some of the coverage limits make sense. I want to review my excess liability coverage. Periodically, I like to evaluate the cost/benefits of increasing deductibles.
General Resolution: As an adviser, I find that for far too many people neglect property, casualty and liability insurance. That should not be the case. Inadequate coverage can decimate everything you’ve spent a lifetime working towards. Resolve to review your all your coverage.
My Resolution: We’ll again look at converting another slice of IRA to Roth. But with the recent tax law changes we’ll be sure to preserve some regular IRA funds to deploy as Qualified Charitable Distributions (QDCs) when we get to age 70.5 unless of course, the tax laws change before then.
General Resolution: Resolve to review the status of your retirement accounts, charitable giving, etc., under the new tax law to preserve deductions (consider non-grantor trusts, QCDs, bunching with donor-advised funds), etc.
My Resolution: We need to review and analyze our budget. While most people view a budget as a four-letter word, or something beneath them if they are wealthy (it’s not), it’s a critical part of every plan. It’s been a few too many years but with one exception I’m sure we are on target. The exception and we all have something, is that my wife has multiple sclerosis. We worry what might become of health care coverage. The many discussions in Washington about pre-existing conditions are nerve-racking. If we had to bear the full cost of all drug therapies and medical care, it would be an incredible burden. We’ve yet to find an answer to plan for the uncertain and perhaps impossible. Unfortunately, some of the really tough planning questions just don’t have good answers. That’s reality. But dwelling on that one issue, to the exclusion of getting everything else in order, would be counterproductive.
General Resolution: Resolve to create a budget and financial forecast. If you have a good wealth adviser this is where they can shine. Could financial modeling, fine-tuned by astute “what-if” questions, help you get your planning on track. Be sure to model out to age 95 or 100 so that longevity doesn’t get the better of you. If you’ve met your financial targets, increase your current giving to family and charity. So, forecasting is vital to everyone anywhere on the net worth ladder. It just has different uses and implications depending which rung you ’re on (and which one you might be one!).
There are a lot of things that might seem missing from our list, but we’ve tried to keep after our planning most years, and to step back to reflect most years on what we need to address. So many of the more common steps like reviewing life insurance, backing up key data, being sure we have the basic documents, and so on, we’ve already done. But like you, we all have things to do and improve every year. And it will stay that way, because planning is an ongoing process, not signing a will.
General Resolution: Accept that estate, financial, charitable, insurance, retirement, and other planning is a process. Not an end game. Resolve to stick with it, revisit it, and periodically address and improve whatever your plan is.
I am an estate planning attorney, author of 42 books, and more than 1,200 articles. I serve on the editorial boards of Trusts & Estates Magazine, CCH (Wolters Kluwer) Professional Advisory Board, CPA Magazine, and the CPA Journal. I’m active in many charitable and commununity causes.
No related posts.