Tansey Estate Planning

Protecting You and Your Loved Ones

Don't Let Estate Tax Uncertainty Postpone Your Estate Planning

By Scott Tansey

Many lawyers believe that, until there is certainty regarding the fate of the estate tax, many clients will neither create a new estate plan nor modify an existing one. Currently there is no estate tax in 2010. If Congress does not pass any legislation, the estate tax will return next year with a much lower exemption amount and higher rates than existed in 2009. Congress also has the option of passing legislation keeping the estate tax but modifying the exclusion, the rates, or both. However, lawyers must impress upon their clients that vital personal issues must be resolved through estate planning, regardless whether there is an estate tax or what the applicable exclusion amount or rates may be in the future.

Imagine two of your clients, Dan and Sarah, decide to take a much-needed vacation to Alaska. Their three young children stay with a friend and neighbors check on their house and feed the dog. The first leg of their journey takes them from Los Angeles International Airport to Seattle Tacoma International. After an hour in the air, their plane develops a hydraulic problem that makes landing safely a problem. The pilot informs them that they are going to make an emergency landing in Portland, Ore. A number of “what ifs...” invade their thoughts: “What if we die? Who will take care of the children?” “What if we are incapacitated? Who will make our end of life decisions?” “What if neither of us can make financial decisions? Who will do this?”

Sarah has additional thoughts: “What if Dan lives and I die? Will Dan and the children be adequately provided for?” “What if I die and Dan remarries? How can I ensure that his next spouse will not benefit from my assets and that all my assets will go to my children when Dan dies?” “What if one of the children becomes a drug addict?”

What’s wrong with this scenario? What Dan and Sarah should have done before their trip was to devise a strategy anticipating such situations. Had they taken precautions and planned for the eventuality of their deaths, either by accident or due to natural causes, their “What if...?” questions would have been answered through estate planning.

Estate planning answers all the “What happens if...?” questions and is important whether or not there is an estate tax, no matter what Congress sets as the applicable rates and exclusion amount.

Although tax planning and wealth preservation are important components of estate planning, those components ignore other details that need to be addressed if your clients dies or becomes incapacitated. If you help clients resolve these personal issues, you will provide them with peace of mind. Crucial personal issues must be resolved at each of the four stages of estate planning. (An estate plan for an individual has only three stages; stage three is skipped.)

  • Stage 1: Client(s) are alive and well. This stage entails one primary concern: how do the clients stay in control over themselves and their property? A common misconception is that estate planning results in surrendering control. This is not true, as long as the clients are capable of managing their affairs.

  • Stage 2: Client(s) become incompetent. This stage addresses plans should your clients become mentally incapacitated. Several important questions are: Who will make financial decisions? Who will make end-of- life decisions? And most importantly, what are the clients’ guidelines for end-of-life decisions? Do they want all measures to be taken to save their lives? Do they want all life-sustaining measures to end if certain conditions exist? What are the conditions that must exist in order to end life-sustaining efforts? The issue of successor fiduciaries must be discussed in detail. Selecting the wrong successor fiduciaries can undermine what otherwise is good estate plan. Another issue that must be examined in detail is how clients want to make end of life decisions. These decisions range from the Right to Life League to the Hemlock Society.

  • Stage 3: One spouse dies (if the client is single go directly to Stage 4). Each marriage is different. There is no right or wrong answer to each of the following questions. Who will make the final decisions about the clients’ property, the surviving spouse? Or, should decisions the clients made as a couple govern this? Do clients want to make sure that the children of the first spouse to die receive a portion of his or her assets if the surviving spouse remarries?

    What do clients want the surviving spouse to receive upon the first spouse’s death? Income? Principal? Everything including the ability to change the plan? Who will make the financial and administrative decisions?

    These issues are sensitive for clients who have been married once and have a long-standing good marriage. These issues become even more sensitive when clients are in their second marriage with a blended family.

  • Stage 4: Both spouses die (or if single, upon the death of the client). This stage of planning includes decisions that most clients procrastinate in making in hopes that this will never happen. Clients should give some serious thought to these questions: Who will receive the clients’ money and property? When do clients want the recipients to receive their money and property? Do they wish to leave all or part of their estate to a charity?

    Do the clients have children? If so, who will rear them? Are they concerned about their children receiving too much money too soon? Are their children capable of managing the money and property they receive? Are they worried about alcohol, drugs, gambling, or any other types of addiction? Do they have a child who receives government assistance (i.e., has “special needs”)?

    Many clients are uncomfortable about discussing these issues about their children. Furthermore, estate planners must be able to present alternatives, such as leaving property in trust for the clients’ children without unduly influencing the clients with the estate planner’s prejudices.

Over time, these issues must be revisited as circumstances change. Children grow up, or the clients’ relationship or financial circumstances have changed so that they need to revise decisions made n their earlier estate planning. Furthermore, at some point, Congress will either affirmatively act or decline to act, thus settling the fate of the estate tax. A prudent lawyer should urge clients not to wait for Congress before acting to protect their personal interests. Once you have explored all the important personal issues involved with your clients, you can integrate these decisions with current tax planning and wealth preservation techniques.

This article originally appeared in the Daily Journal – California's Largest Legal News Provider on
October 8, 2010. – ©2010 Daily Journal all rights reserved.

Scott Tansey is a lawyer in the Los Angeles area whose practice is concentrated in estate and wealth transfer planning. He can be reached at 424.248.9593 or at Scott@TanseyEstatePlanning.com.