5 Estate Planning Traps Recession Created and How to Solve Them
By: Martin M. Shenkman, CPA, MBA, JD
Revise your will. Asset values have changed dramatically. If you had
left the family business to your daughter and your house and portfolio to
your son, they may now be worth widely different amounts then when you set
up your will.
Update your power of attorney. A power gives a person you name, your
agent, legal tax and other powers. You probably need to revisit the power
to make gifts. You may have previously encouraged gifts, but now you may
not feel you can afford them. Change the language. On the other hand, you
may have had no gift provision before but now have children, nieces and
other family members or loved ones you're helping because of the economy.
Be sure if you're disabled your agent can handle it.
Life insurance. You may have had insurance to pay estate tax. Now, the
combination of economic decline and the increase in the federal estate
exclusion (how much you can bequeath tax free) to $3.5 million may obviate
the need for insurance. Perhaps you can sell the policy and generate some
needed cash, not to mention savings on future premiums. Many people find
themselves in the opposite position. They no longer have enough life
insurance because their savings have been so depleted. Consider for example
a 10 year term policy to help your family if you die before your savings
Review business buyout arrangements. Many closely held businesses use
buyout formulas or amounts. Have you revised yours to reflect new economic
realties? If you haven't do it soon. For example, if you valued your
business at $1M before the recession and it is now worth $400,000, what if
one of your partners quits and triggers a buyout. You might owe them based
on the old $1M value!
Revisit Incentive Trusts. Lots of people set up trusts for kids and
others that were intended to match in distributions what the kid earned to
incentivize the kid to work. The goal was to avoid the trust fund Hollywood
babies that are so often depicted on those entertainment magazines at the
supermarket checkouts. But if your kid or other heir lost their job because
of the economy, not because they are being lazy, a poorly drafted incentive
trust could cut them out when the both need and deserve the help the most.
Review the trusts that have these provisions and ask your lawyer what you
can do to make them operate fairly.
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