The attorneys at Nardone Limited in Columbus, Ohio routinely assist dentists and other healthcare professionals in creating and implementing an estate plan. Our firm works with dentists at various stages in their careers and we always advise them that it is never too early or too late to consider having your estate plan drafted or reworked. Whether you are a young professional, a young couple just starting a family, or someone approaching life’s final stages, you can benefit from estate planning.

The Impact of Recent Legislation

Beyond making wholesale changes to the Internal Revenue Code (the “Code”) sections related to the individual and corporate federal income tax, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) also provided extensive changes to the estate and gift tax landscape.

Notably, the TCJA more than doubled the applicable exclusion amount for a person. The applicable exclusion amount is the lifetime amount of federal gift and estate value that a person can transfer before being subject to federal gift and estate tax liability. In 2008, ten years prior to the TCJA, the applicable exclusion amount was just $2,000,000. In 2017, just one year prior to the TCJA, the applicable exclusion amount was $5,490,000. When the TCJA took effect, in 2018, the applicable exclusion amount increased to a staggering $11,180,000. The applicable exclusion amount is currently $11,400,000 per person for 2019.

The concept of portability heightens the impact of the recent increases in the applicable exclusion amount. Congress introduced portability under the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 (the “TRA”). Prior to the TRA, a person could only use their own applicable exclusion amount. Thus, if a person died with an estate less than the applicable exclusion amount for that year, the benefit of the unused portion of the applicable exclusion amount was lost. Under portability, a surviving spouse can port, or transfer, the unused portion of the deceased spouse’s applicable exclusion amount to combine with the surviving spouse’s amount. Thus, for 2019, portability allows a married couple to transfer a combined $22,800,000 of assets by gift or through their estate without tax incurring gift or estate tax liability.

Three Non-Tax Reasons for Estate Planning

The current applicable exclusion amount leaves many people questioning the importance of estate planning. However, the following are three non-tax reasons why estate planning should still be a priority.

Reason #1: Avoid Burdening Your Loved Ones

All too often a person dies, and their family is unable to quickly access bank accounts, retirement funds, and insurance policies to cover everyday expenses, making an already difficult situation even harder. Estate planning anticipates these scenarios and helps to ensure that the appropriate people have the necessary access to a decedent’s assets. 

Estate planning also helps a person avoid probate. Probate is the legal process that occurs after a person dies and includes the identification and inventory of the decedent’s assets, appraisal of those assets, payment of the decedent’s taxes and debts, and distribution of the decedent’s assets. Probate appears to provide many of the same functions as estate planning. However, unlike estate planning, probate requires an extensive amount of paperwork and attorney fees and can take months or even years finalize.

Reason #2: Control the Distribution of Your Assets

Although a person’s assets generally pass to their surviving spouse or family members, estate planning gives a person control over who receives what. Estate planning allows a person to leave cash or other assets to specific individuals. When a person dies and a trust is established for the benefit of another, such as a spouse or child, estate planning gives the decedent control over the future distributions of trust assets to the beneficiaries. Thus, estate planning helps preserve trust assets and ensures a beneficiary’s financial security. 

Reason #3: Protection for Young Children

Estate planning also gives parents control over the upbringing of a minor child in the event both parents die before a child turns eighteen. For many reasons, the parents’ ideal guardian for a child might differ from the guardian appointed by the courts. Thus, estate planning is an important tool that allows parents to name the guardian the parents feel is best suited to raise the child according to the parents’ wishes.

Documents Included in the Modern Estate Plan

Although each person’s estate plan is tailored to achieve that person’s individual goals and objectives, nearly every estate plan is composed of the same six documents. Those six documents are as follows, along with a brief explanation of each:

Will. The will document is considered the centerpiece of the estate plan. However, the will does little in the way of probate avoidance and tax planning. The document names the individual to act as the executor charged with administering the estate and distributing the assets specifically bequeathed to others. A will often works in conjunction with the trust to transfer certain assets to a person’s trust upon their death. Parents with minor children also use the will to appoint a guardian for their minor children.

Trust. The trust document contains the operative language for the trust entity, which is an independent entity that holds a person’s assets. The trust is a person’s main tool for probate avoidance and tax planning. The document names the individual to act as the trustee charged with distributing trust income and principal to the trust’s beneficiaries. As previously stated, the trust often works in conjunction with the will.

General Durable Power of Attorney. The general durable power of attorney document allows a person to authorize an agent to act on the person’s behalf, with respect to legal and financial matters, if the person becomes temporarily incapacitated and is unable to make such decisions themselves. The scope of authority granted to the agent may be limited by statute or by the authorizing person’s wishes. The power of attorney terminates upon the authorizing person’s death.

Heath Care Power of Attorney. The health care power of attorney document allows a person to authorize an agent to make health care related decisions on the person’s behalf if the person becomes temporarily incapacitated and is unable to make such decisions themselves.

Living Will. The living will document allows a person to indicate whether the person wishes to receive artificial life sustaining treatment if the person becomes terminally ill or permanently unconscious and at least two doctors determine that there is no reasonable hope for the person’s recovery.

Donor Registration. The donor registration form is familiar for most people because it is often completed by people when they get their driver’s license. A person’s initial wishes regarding organ and tissue donation can change over time, so it is important to update this information accordingly. Updating the donor registration information now, while making your estate plan, provides a more intimate setting to consider these decisions, including which organs and tissues to donate and for what purposes.

It Is Never Too Early or Too Late to Plan

Again, there is never a wrong time to start considering creating or modifying an estate plan to achieve your financial and legacy goals. Young or old, estate planning presents unique opportunities for everyone at every stage in life. If you do not currently have an estate plan, you should consider the impact the lack of an estate plan could have on your family. If you have a previous estate plan, when was the last time you reviewed it? Even if you have an estate plan, it is important that you regularly review the documents to see if they are still relevant. As time goes on, our lives change and changes in our finances and personal relationships occur. Does your current estate plan account for these changes? The attorneys at Nardone Limited are willing and able to work with you in creating a new estate plan for you or review and amend a previously created estate plan. If you would like more information on estate planning or would like to discuss preparing your estate plan, please contact Nardone Limited today.