by Jim Biesterfelt
“The risks of not having a current estate plan far outweigh the expense of getting one in place.”
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With the current economic downturn, belt-tightening is the mantra of the day as consumers forego discretionary expenses like dinners out, expensive vacations, and new furniture for the house. In his Denver law practice, Stephen P. Rickles, JD, has also observed clients curtailing estate planning, thinking that it's a discretionary expense they can put off until times are better.
But procrastinating is a gamble, Rickles says. “The cost of estate planning is relatively modest compared with the mess a family can be left to deal with when there's no plan in place,” he observes. “A plan can cost as little as several hundred dollars or as much as several thousand dollars, depending on the size and complexity of the estate. In my opinion, the risks of not having a current estate plan far outweigh the expense of getting one in place.”
According to Rickles, the following are just a few of the risks you take when your estate plan is out-of-date or inadequate:
• Your children or other dependents may not be provided for properly. Make sure you name a guardian for your children in your will; otherwise, the courts will appoint someone. In addition, minors cannot receive estate assets outright, so consider establishing a trust to manage the assets for the benefit of your children.
• Your beneficiary designations may not reflect your current wishes. Life insurance policies, annuities, and retirement plans require you to name the person(s) who will receive the asset when you die. Beneficiary designations generally override a will, so review and update them periodically.
• Your estate plan may not be in sync with state laws. State laws vary in regard to wills, so if you have moved recently, ask an experienced local attorney to review your will. This could be especially important if you have moved from a common law state to a community property state or vice versa. (Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.) In addition, your estate plan should address the potential for state-imposed estate or inheritance taxes.
• Your estate could be subject to federal estate taxes. The federal estate tax exemption is $3.5 million for 2009, and Rickles predicts that Congress will extend that exemption through 2010. “For married couples, that means the total available exemption is $7 million,” he says. “However, planning is required to take full advantage of both exemptions.” A trust can accomplish this objective. Another way to build flexibility into an estate plan is to write a “disclaimer will,” Rickles notes. With this type of will, for example, a dentist can leave all of his or her property to the spouse, anticipating that estate taxes will not be a concern. However, wording in the will could allow the spouse to disclaim a portion of the assets into a trust that would be exempt from estate taxes and not included in the estate of the surviving spouse at his or her death.
• Your estate could lack the cash to carry out your wishes. This is why adequate life insurance is an important part of an estate plan, Rickles says. Life insurance can provide immediate funds to finance a child's education, pay off a mortgage, carry out a buy-sell agreement, and more. In addition, life insurance proceeds are received income tax-free, so your heirs can use this money to pay expenses rather than having to cash in your IRAs or other retirement plans, which are subject to income taxes when withdrawn. And in times of market downturns, life insurance can replace other assets that may have diminished in value.
Rickles says a good estate plan is a necessity, not a luxury, no matter which way the economic winds are blowing.
Editor's note:This article does not constitute legal, tax, or financial advice. Please seek professional input as appropriate to your situation.
Jim Biesterfelt is vice president of Group Special Accounts at Great-West Life & Annuity Insurance Company, which underwrites and administers the ADA Insurance Plans and is sole provider of ADA-sponsored life and disability insurance. For information about ADA Insurance Plans or free Personal Estate Planner, call (866) 607-5330, send an e-mail to [email protected], or visit www.insurance.ada.org.