By far, the hardest part of estate planning involves the family decisions. In the above sermon title, I used the irresponsible child as a funny example. In truth, we can replace that with dozens of other examples, thus illustrating the complexity of these family decisions. The issues involved cover a wide spectrum and cause emotional blockades for drafting documents. Does one of your children have a shaky marriage? One child is a responsible and successful tax payer, and the other child is the exact opposite, how do you address this? Can you trust a child with your grandchildren's college money? Who can run the family business? The list of questions can multiply even more when talking about blended families.
So, given any changes in your family dynamics and the current recession, there are some important reasons to revisit your estate planning, even though you may have to face some uncomfortable issues.
First, examine your will. Many wills layout a division of assets among the hiers. This type of will presents problems because asset values change. For example, if real estate was left to a daughter and stocks left to the son, those values today may have changed considerably. Another consideration for changing your will is if the will directs all assets into a Credit Shelter Trust to take advantage of the Unified Credit, currently $3.5 million. With the decrease in asset values across the board, this may be an unnecessary and inflexible estate planning technique.
A better approach, according to local estate planning attorney Laura French, is to use a disclaimer will.
"Two or three years ago, people used the Unified Credit Shelter Trust to take advantage of the Estate Tax Unified Credit. Today, the better technique is a disclaimer will. In a disclaimer will, the Unified Credit is optional. This allows the client to address two issues: Valuation adjustments of their estate assets and impending law changes to the estate tax," she says. "The disclaimer will is not recommended for people who aren't emotionally equipped to deal with post-mortem planning because there is a nine month limitation with which to make the disclaimer," she adds.
In addition to examining your will, both the power of attorney document and advanced directive for healthcare document should be reviewed. On these issues, French says that "Financial institutions are more suspicious of financial powers of attorney because of fraud and abuse. Going directly to your financial institution and executing their power of attorney forms today is a smarter approach because you can avoid potential legal costs and expedite estate matters." She also adds the Georgia Advance Directive for Health Care Act was passed in 2007 and client documents should be updated accordingly.
Lastly, if you're a partner in a small business, review your business buyout arrangements. Does this arrangement use a buyout formula or specific amount? Does this arrangement reflect today's economic reality? As an example, what if your business was valued at $2 million three years ago and is now worth only $1 million, and your partner quits or dies and triggers a buyout? How will you handle this if your agreement is set at the $2 million price? French advises that buyout agreements should have provisions for a business appraisal to be performed when a triggering event happens to determine the value.
Use the recession as an opportunity to review your estate planning documents and possibly save some money and headaches down the road. If you don't have any estate planning, call a qualified estate planning attorney and start the conversation. Whether you're new to the process or revising the existing documents, don't let difficult family decisions be an obstacle for you in dealing with estate planning. A good estate planning attorney has seen it all before and will help you navigate through these decisions.
Andrew Brown is a Certified Financial Planner and a Fee-Only Registered Investment Adviser.
