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Is There a Ticking Time Bomb in Your Estate Planning?

By Ann Margaret Carrozza, Esq.

Most of us have a will. This provides a blueprint for what happens to our property and assets at our death. While it is vitally important to have a will, many individuals and families need more estate planning protection than this to cover a variety of situations highlighted below:

1. A Simple Will Does Not Minimize Taxes.
Under current Federal law, an individual can pass up to $5 million to his or her heirs free of transfer taxes. For purposes of determining the transfer (estate) tax, life insurance proceeds, pension plan and annuity death benefits as well as liquid assets, real estate and securities are counted. This exemption, however, is scheduled to tumble back down to $1 million, effective January 1, 2013 with a tax rate as high as 55%. Therefore, anyone not planning to die during 2012 should gear their estate planning to the lower exemption threshold of $1 million. Individuals and couples with an estate in excess of $1 million may benefit from a variety of trusts, which can help minimize any transfer tax liabilities.

2. Second Marriage Concerns.
An increasing number of us in second marriages may well need to engage in special planning to avoid conflict between a surviving spouse and children of a prior marriage. A will, which can be contested by an aggrieved party, may not be appropriate when there is reason to believe that a family member may cause problems later.
A trust, unlike a will, cannot be easily contested. Moreover, trust administration following death is private. Wills, on the other hand, become public documents which must be administered with court oversight through the probate process.

3. Disabled Spouse or Child.
A simple will does nothing to ensure that a family member with a long-term illness or developmental disability will be provided for adequately after our death. In order to provide for disabled loved ones while maintaining eligibility for programs to which they may be entitled, one must consider Special Needs Trust planning.

4. Protecting Assets in the Event of Disability.
Because a will only takes effect at our death, it provides no protection for our assets in the event of a long-term illness. This is why it is very important to have a comprehensive Durable Power of Attorney in place. Through the power of attorney, we can designate an agent to “step into our shoes” and make financial decisions in the event of incapacity. In order to provide maximum protection, the power of attorney should not be a preprinted form that is simply filled in. These forms are almost always inadequate to protect all of an individual’s assets in the event of incapacity. An experienced elder law or estate planning attorney can draft a comprehensive power of attorney to address all of life’s possible curve balls.