Even Superheroes Die… Your Estate Planning in 2009

By Todd M. Kiesz

Unbelievable, nearly two years have passed since the death of Evel Knievel. Mortality struck another childhood Superhero. I hope his planning was in order.

If you have not updated your estate planning in the past several years, consider doing so now.

Reason 1: It is a good idea to review one’s planning every three to five years, or sooner if your life situation changes.

Your estate planning is based upon assumptions and understandings at a snapshot in time. Life changes, anticipated and otherwise. People get sick, children grow up, family businesses sell, and lotteries are won. People you designated to run your affairs change. Support trusts for minor kids may no longer be necessary. If a child is having creditor troubles or marital problems, perhaps certain protections need to be in place to help protect that child’s inheritance from risk of loss. Are there new special needs or requirements of a given beneficiary? Has a charity become significant to you justifying inclusion into your affairs? Has the most unbelievably lucky Nigerian investment opportunity arisen, so that you will need to revise your will to accommodate the vast wealth change which is about to occur after you email to the exiled former prince of Nigeria your bank account and social security numbers?

Reason 2: Asset values have changed so much over the past year. The intended allocation of your assets under your Will, and the associated relative values five years ago, may be quite different from the actual results if you died this year.

Many people arrange their affairs to provide specific assets to specific individuals. The selection of assets and designation of beneficiaries is at times based upon an individual’s interests and skills, but more often it is based upon the asset values and an intent to provide certain relative values among specific people.

For example, a husband and wife want 30% of the wealth to go to the children of the prior marriages and 70% to go to their shared children. They then designated a cash savings account which in 2007 has 30% of their net worth to the children of the former marriages, and left the balance of the assets consisting of securities and some bare land to the children of the current marriage. Based upon all of the economic fun we had in 2008, the securities account and land will be worth substantially less than it was previously. This couples planning needs to be revisited and adjusted. Failure to do so, results in a far greater relative percentage of the asset values passing to the children from the former marriage, than the 30% originally intended.

Reason 3. 2009 marks the first year in which the State of Washington and the federal estate tax limits differ to such a degree that for some estates, many Wills, particularly Wills prepared more than three or four years ago, may be inadequate to maximize your ability to save estate taxes.

The estate tax situation we have today was not contemplated several years ago, and as such, some tools and provisions needed today did not then exist. Much like the fact that microwave popcorn did not exist before microwaves.

People with this new planning opportunity are married individuals who collectively have, or intend to have at their deaths, total assets in excess of $2,000,000. Remember, “total assets” includes life insurance, retirement accounts, real estate, business interests, and anything of value.

Focusing on today’s values of your assets and holdings is short sighted and should not be the measure of the need for this planning. Presumably, we will live past tomorrow and into a recovery period. Our assets will once again grow. These past several months of financial horror will be nothing but the scary story we tell our grandchildren around a campfire each summer. When looking to see if your holdings exceed $2,000,000, look to tomorrow’s anticipated value.

Reason 4. If a family member is sick, and perhaps on their last few months, weeks or days, there can be significant estate tax savings opportunities available by gifting. For many estates in excess of $2,000,000, end of life gifting can greatly reduce if not eliminate estate taxes. Such gifting does come with consequences and risks, so make sure and check with your accountant and lawyer before doing any major gifting to see if it is appropriate.

What should you do from here?

A. Review your assets and their values. Write down and map out your holdings. What do you own? What do you owe? Where are your assets located? Make sure to include life insurance; retirement accounts; real estate; annuities; any interest in an entity like a LLC, partnership, or corporation; investments; and cash.

2. Confirm your current beneficiary designations. Who gets your life insurance when you die? Does your IRA or 401K pass to your wife or kids? Did you put your daughter on your checking account? Map out all beneficiary designations or joint owner designations.

3. Review your plan. How do you want your assets divided when you are gone? Who do you want to be in charge of your affairs at your death? Do your Will and beneficiary designations accomplish this.

4. Do you have an estate tax problem? If your total assets exceed $2,000,000, you have an estate tax problem and planning opportunity.

5. Review your plan with your accountant, investment advisor, insurance agent, and attorney, to make sure all is being done to accomplish your goals and objectives.

In closing, when you go to the great grandstand in the sky, may you each have the peace of mind to know your earthly affairs were in order, while you watch Evel ride his motorcycle off a jump, through a circle of fire and over three hundred heavenly buses.