Estate Planning

 

The Estate and Wealth Planning practice at Duggan Law Firm maintains a keen focus on both the short-term and long-term planning needs of the client. Our services include:

Other Services include:

  • Asset Protection Planning

  • Family Office Structuring and Administration

  • Probate Administration

  • Post-Mortem Planning 

  • International Planning

  • Wealth Transfer Planning

  • Family Limited Partnerships

  • Dynastic/Multi-generational Trusts

  • Business Succession Planning

  • Charitable and Philanthropic Planning

  • Life Insurance planning

More about Estate Planning:

Estate planning in the midst of uncertainty is critically important.  Never before in our modern history has a person been able to gift $5,250,000 without paying gift or estate tax.  Careful and flexible planning is what is required (See the list below of the top 10 mistakes NOT to make.)   There is something in the 2010 Tax Act to help everyone.   If you are the adult child of elderly parents, you can assist those elderly parents to gift their assets to a trust and make the assets safe from estate taxes forever.  If you are a married couple with a net worth above $1,000,000 you can do trusts for each other and make that money safe from estate taxes for your entire life, and the lives of your children and grandchildren.  There are countless other ways that we can help meet your estate planning goals here at Duggan Law Firm, LLC.

You spend a lifetime accumulating the funds and assets that become your estate, so no matter its size, planning for your estate should be a priority.  By creating an effective estate plan, you can have the peace of mind that comes with knowing you have a plan in place to protect your family and everything you’ve worked for. Here at Duggan Law Firm, LLC we know that each family comes with a different story, so our planning techniques are customized to help you develop and refine it in the way you wish.

We will help you create a well-drafted estate plan that will keep your family out of the public process by ensuring your estate passes to whom you want, when you want and that it is carried out in the way you’ve chosen. We want the goals and wishes you have for your assets and your family to become a reality when you pass. Don’t let chance and the government sort out what you’ve spent a lifetime building, let Duggan Law Firm, LLC help develop a plan for you and those you care about.

Estate Planning is more that just a Last Will and Testament

Estate planning is much more than just preparing a Will.  A comprehensive estate plan is an essential component of a client’s overall financial plan.  The objective of an estate plan is to develop a framework for the orderly distribution of a client’s property consistent with his or her wishes and lifestyle with minimum tax liability.  An estate plan should be flexible enough to take into account future asset growth and changes in existing circumstances.  Sometimes overlooked, an estate plan should also contemplate the possibility of a client’s disability (physical or mental) prior to his or her death.

It is the attorney’s responsibility to work with the client to develop an estate plan specifically tailored to meet the needs of the particular client.  Such a plan can only be prepared by the attorney after receiving input from not only the client but also from his or her accountant, insurance agent, and financial advisor.  The planning process may involve some or all of the following:

  • an analysis of the client’s objectives and concerns with respect to the disposition of his or her assets;

  • a review of the client’s asset holdings to determine the nature, value, and method of ownership of the assets and possible recommendations for the shifting of assets to facilitate the plan;

  • projections of the potential federal and state estate tax liability;

  • an evaluation of the adequacy of liquid resources available to pay the debts, expenses, and estate tax liability and to provide for the financial security of the surviving spouse and children; and

  • a review of insurance and retirement benefits and beneficiary designations.

The more familiar a client is with the fundamentals of the planning process, the greater the likelihood that a plan can be developed to meet most - if not all - of his or her objectives.  In addition, an informed client will be less likely to inadvertently take action following the implementation of the plan that could jeopardize its effectiveness.  A client is encouraged to ask questions because he or she should have the peace-of-mind that the plan addresses his or her particular needs and desires.

ESTATE AND GIFT TAXATION IN LIGHT OF NEW LAW

The federal estate tax is a tax assessed on the assets an individual owned, or is considered to have owned, at the time of his or her death.  Although this tax is entirely distinct from the income tax, the calculation of both taxes is similar.  The estate tax liability is determined by adding the values of all assets in which the decedent had an interest (including life insurance) as of his or her death and reducing that sum by all applicable deductions (such as deductions for debts, funeral and administrative expenses, charitable bequests, and property passing to the surviving spouse) and credits (such as the “applicable credit amount”).  Currently, the estate tax rate is 40%. 

 

Particular attention will be given to the concepts of “gross estate,” “marital deduction,” and “applicable credit amount” in developing an estate plan.  The “gross estate” includes all property that the decedent owned (or is fictionally treated as having owned under the tax laws) as of the date of his or her death.  The gross estate includes such diverse assets as cash, securities, real estate, and personal property.  It also includes overlooked assets such as the decedent’s interest in jointly owned property, retirement benefits, and life insurance policies.  It is particularly important for the effectiveness of an estate plan to have a realistic idea as to the potential size and nature of the gross estate so that potential problems can be spotted and addressed.  Clients are often surprised over the size of their potential estates when insurance proceeds and retirement benefits are taken into account.

 

A “marital deduction” is allowed for the value of all property passing to the surviving spouse upon the decedent’s death.  The property may pass either outright or by way of special trusts (such as a qualified terminable interest property trust a/k/a “QTIP Trust”).  Use of the marital deduction is primarily intended to postpone payment of estate taxes until the death of the surviving spouse and is typically a key element of the estate plan for married individuals with a sizable estate.

The “applicable credit amount” is the equivalent of a $5,250,000 deduction.  Each person has one such credit that will first be used to offset any lifetime gift tax liability and then any estate tax liability.  A married couple taking full advantage of both spouses’ credit amounts could pass property having a total value of $10,500,000 free of estate taxes to their children.  The credit amount is also “portable,” meaning that with the appropriate planning, a decedent can transfer any unused credit amount to his or her spouse so that it might be used at the time of his or her death. 

The federal gift tax is a liability of the donor assessed on the value of property passing to a non-spouse beneficiary during the donor’s lifetime.  An annual gift tax exclusion of $13,000 per donee per year ($26,000 if the donor’s spouse agrees to make a special election on the filed gift tax return) is available for most gifts.  Any taxable gift in excess of the annual exclusion will first be offset by the available applicable credit amount.

South Carolina does not assess any gift or estate tax, and so, is a tax advantaged state in which to retire.  That was not always the case.  Prior to 1992, the South Carolina estate and gift tax structure was in a transitional state and differed from the federal system.  The major differences in the two systems prior to 1992 primarily related to the size of the credit amount and the tax rates.

SIMPLE VS. “CREDIT SHELTER” WILL PLAN

A Simple Will Plan (aka an “I love you” Will Plan) leaves everything outright to the surviving spouse on the first spouse’s death, or in the alternative, everything outright to the children if there is no surviving spouse.  If a child-beneficiary is under the legal age of majority when the surviving parent dies, then provisions can be made for the appointment of a guardian and control of the assets until the child turns eighteen.  Generally, Simple Wills are appropriate for a married couple having combined gross estates of less than $1,000,000 (or possibly more depending upon how the law may change in the future).  The Simple Will takes full benefit of the unlimited marital deduction to avoid any potential estate tax liability upon the first spouse’s death even though the advantage of the first spouse’s unified credit amount is completely wasted.

A Credit Shelter Will Plan should be considered for the majority of couples whose combined gross estates exceed $1,000,000 (or possibly more depending upon how the law may change in the future).  Like a Simple Will, there will be no federal estate tax liability due on the first spouse’s death.  However, a Credit Shelter Plan is designed to minimize the estate tax liability on the second spouse’s death by taking full advantage of each spouse’s credit amount.  Under current law, the first spouse to die transfers assets worth up to $5,250,000 free of federal estate taxes to a trust (a “Credit Shelter” Trust a/k/a a “By Pass” Trust) established for the benefit of the surviving spouse.  Any property in excess of the $5,250,000 amount passes to the surviving spouse in a manner to qualify for the marital deduction.  

 

The Credit Shelter Plan is designed so that the $5,250,000 Credit Shelter Trust will bypass estate taxation on the second spouse’s death.  A mathematical formula is included in the Will so that the Plan will be flexible enough to take maximum advantage of the interplay between the martial deduction and the unified credit amount even if the gross estate increases following the implementation of the estate plan.  The potential federal estate tax savings generated by using a Credit Shelter Plan rather than a Simple Will Plan upon the death of the second spouse to die can be quite significant.

ESTATE TAX CHANGES RESULTING FROM THE 2010 TAX REFORM ACT

The American Taxpayer Relief Act made permanent  the estate tax from the 2010 Tax Relief Act, giving it an applicable credit amount of $5,250,000 and a 40% tax rate.  The Act also reenacted the generation skipping transfer (GST) tax also with an applicable credit amount of $5,250,000 and a 40% tax rate.  The GST tax is imposed on gifts and bequests to grandchildren or descendents in more distant generations and to trusts established for their benefit. 

One of the new things provided for in the Act is the permanent “portability” of the applicable credit amount for estate and gift taxes.  If someone passes away now, any unused applicable credit amount can be transferred to that person’s spouse so long as a federal estate tax return is filed with appropriate information.  Good estate planning can be done even in the midst of the current uncertainty of what Congress will do to the estate tax laws in the near future.

ITEMS FOR CONSIDERATION

Some of the following items may need to be considered as part of the estate plan depending on your particular needs and circumstances:

  • Durable Power of Attorney - A document giving your designated agent the ability to manage your property and take actions of your behalf.  It is particularly valuable should you become incapacitated.

  • Living Will and/or Health Care Power of Attorney - A document directing that you be allowed to die a natural death and not have your life prolonged by artificial means.  A Health Care Power of Attorney is a related document that should be considered which gives clear authority to an agent to make health care decisions for you if not able.  The state approved form includes living will provisions within it.

  • Revocable (Living) Trust - A trust created during your lifetime.  You retain the right to terminate or change the trust anytime prior to your death as well as the right to receive any income generated from the trust.  A revocable trust can be funded before or after your death.  Typically, any assets not on deposit in the trust as of the date of your death will be transferred to the revocable trust to provide for an orderly estate administration.  Revocable trusts are particularly useful for persons having a sizeable amount of insurance or retirement benefits.  Revocable trusts can also be used to minimize probate court fees and to plan for incapacity or incompetency.

  • Life Insurance Trust - A useful tool for removing life insurance proceeds from your gross estate and directing the disposition of the proceeds following the insured’s death.  Although the trust would be the owner of the policy and therefore the policy would be excluded from your gross estate for tax purposes, the life insurance proceeds can be made available to provide a source of liquidity for the payment of your estate’s debts and taxes as well as for the future financial security of the surviving spouse and children.

  • Children’s Trust - An irrevocable trust created either during or after your lifetime to hold assets for the benefit of your children.  A Children’s Trust can yield estate tax savings as well as possible income tax savings.

  • Grantor Retained Annuity Trust (“GRAT”) - An irrevocable trust wherein you retain the right to receive a fixed distribution amount each year from the trust for a predetermined number of years.  The trust assets are distributed to previously designated beneficiaries upon the termination of the trust.  For tax purposes, GRATs enable a creator to pass a significant amount of property - together with any future appreciation thereon - at a significantly discounted gift tax cost because of the term interest retained by the creator.

  • Charitable Remainder Trust - An irrevocable trust that provides you a current income tax deduction upon the funding of the trust even though you and/or your spouse are entitled to receive a distribution of a fixed or varying amount each year from the trust.  The charity receives the principal upon termination of the trust.  This trust is sometimes used in connection with retirement and insurance planning.  It also can be used as a mechanism for the tax-free conversion of low yielding securities into higher yielding securities while simultaneously fulfilling a charitable desire.

  • Buy/Sell Agreement - A document created to control the disposition of an interest in a business to an outside party by another co-owner.  In addition, this agreement typically provides for the purchase of a co-owner’s interest in the business upon his or her death or permanent disability.  This agreement can serve to fix the value of the business interest for estate tax purposes as well as to provide a source of estate liquidity for an otherwise illiquid asset.

  • Joint Survivor’s Life Insurance - A life insurance policy that pays a death benefit upon the death of the surviving spouse.  The insurance proceeds from such a policy are normally designed to provide a source of liquidity with which to pay the estate tax liability on the death of the surviving spouse.  The premium payment for a joint survivor’s policy when compared to a single life policy are normally significantly less expensive because the actuarial life expectancy of two lives on which the premiums are based is longer than the life expectancy of either individual alone.

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