Musings from the CEO – Summer 2014

Mike HoffmanI saw a headline the other day that declared “Why You Should Update Your Estate Plan”. Now, there is a topic that I could write a book about!

I have heard statistics that up to 80% of Americans either have no Will, or some attempt at a Last Will and Testament that is sorely inadequate. The basic core documents that everyone needs are a Will, a General Power of Attorney (that kicks-in upon disability or incapacity), and a Health Care Directive. Once these documents are in place, they need to be reviewed periodically. Obviously, tax laws and family circumstances change. Also, more and more people move because of job changes, they retire to another part of the country, or they move closer to their kids and grandchildren.

A little over two years ago, the $5,000,000 estate tax exemption became “permanent”. This does not mean that it won’t change, and in fact, it does change by going up a little bit each year. Going from $600,000 (the exemption in the ‘90’s) to $5,000,000 took most of us off the estate tax paying rolls and did change the focus of a lot of estate planners. We generally pay more attention to income tax matters than we did before. For instance, if a married couple has over $10,000,000 of exemption available, rather than trying to get everything out of their taxable estates, we would like for at least that much property to go to their heirs from their estates (after death), therefore, with a brand new income tax basis.

I read that one commentator expressed that an estate plan is not meant to be put in a time capsule and to be opened and dissected at death. An estate plan will change and evolve. There are many things that can be accomplished with a comprehensive estate plan. Not only are we saving estate taxes, income taxes, and probate costs, we are protecting assets, providing sound management of assets, and taking care of other responsibilities.

How are we leaving assets to our spouse and descendants? Can we be better stewards of our wealth by considering appropriate planning techniques, such as trusts?

It is important to periodically check the ownership and beneficiary designations of life insurance policies to make sure that these liquid assets will be handled appropriately. It is extremely important to review beneficiary designations on IRA accounts and other retirement plan assets. Not only do you want to make sure the assets go where you intend, but you want to maximize potential tax savings.

The ownership of all assets ought to be reviewed periodically. There are several types of joint ownership that have different consequences for estate planning and tax purposes. It is not just deeds for real property that should be checked, but it’s also important to understand how the titling of your investment accounts can affect the treatment of your assets at death.

If you own property in other jurisdictions, such as a house at the beach or in the mountains, this can complicate probate matters for the family. It is a relatively simple matter to use one of several techniques to remove that particular asset from your probate estate, potentially saving a great deal of time, money and aggravation for your spouse and descendants.

Most family/closely-held businesses do not have a succession plan or an exit strategy. This is particularly concerning when it is that family business that created the wealth. Will the business suffer a potential loss of value to the family when the patriarch or matriarch is no longer in the picture?

There are countless reasons why you should update your estate plan. First and foremost, make sure you have an estate plan. A failure to plan is a plan to fail.


For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Musings from the CEO

In my last column, I discussed the current fate of estate and gift tax law.  The emphasis is on the prospective most significant increase in tax rates and lowering of individual exemptions that we have seen in our lifetime.  For those individuals with large estates, this creates a sense of urgency for estate planning to be done between now and the end of 2012.

Today, I’d like to bring it down a notch and discuss more traditional estate planning concepts that apply to a broader cross section of individuals/clients.

I am a firm believer in trusts, hence the moniker a “trust and estate lawyer”!  For the vast majority of our clients that means leaving their estates to their spouse, but directly to trusts that are created by their Wills.  These trusts are most often controlled by, and for the benefit of, the surviving spouse.  When property eventually goes to children, we believe that in most cases it is far more beneficial to have trusts created for your children, regardless of age, that will last for their lifetime.

If the document creating the trust (Will or trust agreement) is properly drafted, your spouse or child can be the trustee of his or her trust, effectively exerting all of the control over assets that they would have had if they inherited property outright.  However, the estate tax savings for future generations, the potential avoidance of generation skipping tax, the income tax flexibility, the protection from creditors, the protection from divorce, the preservation in the family, and the avoidance of probate are some of the reasons that it is desirable to allow the property to flow from generation to generation in trusts, as long as there are any significant assets worth protecting.

The 2010 tax law introduced the concept of “portability”.  This simply means that if one spouse dies and his or her estate does not use all of their estate tax exemption, the remaining unused portion can be carried over to the surviving spouse to be used in that estate.  There are numerous limitations and weaknesses in relying on portability, and we suggest that clients continue to have Wills that leave property to surviving spouses in trust(s), generally a combination of a Credit Shelter Trust and a QTIP Marital Trust.

Life insurance trusts are very common in many estate plans.  It almost always seems to be a good idea to get life insurance out of estates now.  As we get older, our clients acquire a lot of insurance for estate liquidity purposes.  If we maintain insurability, it is always good to have these policies reviewed to make sure that you are allocating resources as prudently as possible.  There may be situations where it would be prudent to prepay premiums.

Another method of reducing an otherwise taxable estate would be to consider a Roth conversion of a traditional IRA as a technique to get taxes out of a taxable estate, in a situation that would otherwise involve an asset (the traditional IRA) that will be subject to both income taxes and estate taxes upon the death of the owner.

Clients with more modest estates need to combine estate planning with Medicaid planning.  What can be done to protect assets if one of the spouses has to go into a nursing home?  First of all, both spouses should have a current Health Care Directive as a necessary part of their estate planning documents.  Considerations should be made to move investments to the name of the healthier spouse.  The healthier spouse’s Will can create a special needs trust in the event that he or she predeceases the spouse with health and living assistance concerns.

A part of estate planning should consider the need for long term care insurance.  The sweet spot to acquire long term care insurance seems to be when a couple is still in their 50’s.

The couple can consider a lifetime QTIP Marital Trust.  This would combine estate tax planning with Medicaid planning.  The lifetime QTIP is a method to protect the home in the event of Medicaid stepping in.  We also have a technique referred to as an Irrevocable Income Only Trust (IIOT) which can be established to start the five year look back rule for Medicaid.  Finally, once a spouse is moved to a nursing home, continued planning should be done for the independent spouse.

Besides Wills that create trusts for the surviving spouse and lifetime trusts for descendants, the Irrevocable Life Insurance Trust to remove life insurance proceeds from anyone’s taxable estate, the Health Care Directive, and any “special” trusts created for Medicaid planning, everyone should have a comprehensive General Power of Attorney.  These power of attorney forms should be “durable” so that the document remains in force after disability or incapacity.  In Georgia, these documents can be drafted so that they do not spring into effect until they are needed.

Remember that the more you plan, the more you save and the smoother the probate process will be for your loved ones.  The old adage is that “…we haven’t got an estate tax, what we have is, you pay an estate tax if you want to; if you don’t want to, you don’t have to.”

If you have any questions about estate planning, please contact Hoffman & Associates at (404) 255-7400.