Just Let Go! Estate Planning and Losing Control

Just Let Go! Estate Planning and Losing Control
By: Alan Orlowsky

Let's Talk about.....The biggest obstacle to smart estate planning, the fear of letting go.

Stan (not real names) was a successful business man living in Northbrook, IL. Over the past few decades he had made all the right moves, was a success in both his business and personal life and had set up a Estate Plan to ensure his life's work would take care of his biggest asset his Family. On the advice of his financial and legal advisers, Stan set up a special needs trust for the benefit of his disabled son Dan. Not only would the trust help reduce estate taxes, because it held assets outside of Stan's estate for tax purposes, but it provided a professionally manages fund for Dan, the beneficiary, after Stan's death. The same year he set up the trust, Stan gave a $12,000 gift to each of his other children so they would not feel slighted. Doing so also reduced the value of his estate for tax purposed, without incurring gift tax consequences, thanks to the annual gift tax exclusion.

Unfortunately, Stan made one of the most common estate planning mistakes. He neglected to transfer to the trust valuable assets that he acquired years later, and so the trust was now inadequately funded, and those assets ended up in probate when he passed years later. He had worried that once he transferred assets to the trust he would lose access to them in case of emergency. This fear was true, because the trust was irrevocable. Stan had also stopped giving annual exclusion gifts towards the end of his life.  His advisers assured Stan that he had enough wealth, as well as insurance coverage, to survive just about any emergency, and still to give generously to his loved ones. Stan's biggest issue was he could not let go. Luckily, after Stan's death one of his well-to-do children helped to take care of Dan, otherwise Dan would have had to rely on the state for support.

Security is in your mind. The fear of letting go is a common affliction among people who are planning their estates, especially those who are accustomed to being in charge.  The irony is, gifting and transferring assets can actually make you feel more secure rather than less. Advisers often have a hard time persuading people that giving up control of their money, or giving it away, or move from being active investor to a passive investor, is in their best interests. Knowing that you have provided for your loved ones in the event of your death can give you more peace of mind than mountains you of wealth. It can also improve family relationships and let you enjoy the gratitude you earn during your lifetime from your beneficiaries. It's so important to understand how estate planning can enhance, rather that destroy, your financial security. Below is a brief guide to some of the basic estate planning tools and their benefits.

• Revocable Living Trust - Assets that you transfer into a living trust will pass to your heirs outside of probate, sparing your heirs delays and extra costs. You have access to all trust funds at any time, and you can amend, terminate or revoke the trust as well.
• Irrevocable Trust - You can;t revise or revoke it, but you can rest assured that your estate will not pay estate tax on the assets that you transfer to it. You can use irrevocable trusts to accomplish various goals from minimizing estate taxes, like Stan's special needs trust. 

Other kinds include incentive trusts, irrevocable life insurance trusts, trusts for minor children from previous marriage (which also keeps the funds out of the ex-spouse's control), and Trusts for the spendthrift beneficiaries or others who are not ready or able to manage an outright inheritance. Knowing that the trust beneficiary is going to be well cared for, and/or the funds will be managed by a competent trustee after your death will help you sleep better at night.

• Annual Exclusion Gifts - You can give away $12,000 ($24,000 for married couples) to any recipient, and to as many recipients as you wish, free of gift tax consequences. Gifting also reduces the value of your taxable estate. At the same time, you can help your loved ones make a down payment on a home, pay college tuition, take a vacation, or simply pull through a rough period. Of course you would not give money away if you really need it for your own survival and comfort, but you should always consult your financial adviser before the end of each year to decide whether you are in a position to make exclusion gifts.

•  Durable Power of Attorney for Property - A durable Power of Attorney gives your agent the authority to manage your financial affairs if you become incapacitated. As long as you are competent (as determined by your own physician and/or judge), you do not give up control. But if you do become unable to make sound decisions, the person who takes over is the person you selected. If you do not have a durable Power of Attorney and become incapacitated, a judge will appoint an agent to make decision on your behalf.

The Best time to take action - You will probably derive greater satisfaction sharing your wealth now, while you are able to enjoy the gratitude of your loved ones, rather than after your death. If you have not created an estate plan, or have neglected to transfer assets to your living trust or irrevocable trust now is the time to take action. Your options only narrow as you age.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website http://orlowskywilson.com/