Are Your Affairs in Order?…Read On


Estate planning, although complicated , protects your loved ones when you die or if you become incapacitated.  During a time when family relationships and emotions run high, an estate plan settles your affairs and ensures the future happiness of the people you care most about.

Peter L. Lese, a Partner at the law firm of Warshaw Burstein, LLP in New York offered his advice on how to protect your family with an estate plan.  Here is what you need to know.

Boomer:  What is the importance of a living will vs. a Health Care Proxy?

Lese:  A living will is an important part of the estate planning documents.  It is an expression of a person’s wishes regarding the medical procedures that should be followed when faced with an incurable or irreversible condition, such as terminal cancer, or in a persistent vegetative state, such as a coma.  A living will can be of critical importance to make sure that one’s wishes regarding the dying process are carried out.

Typically, a living will includes a request to not have one’s life prolonged by life-sustaining measures, such as a respirator, and to be allowed to die naturally and to be given all care necessary to be comfortable and relieve pain.  In some states the living will has been substantially supplanted by the health care proxy which not only memorializes an individual’s wishes, as with a living will, but also, names a health care agent to make health-related decisions in the event that a person is unable to speak on his or her own behalf.  Nevertheless, because not all states have health care proxy laws, and it is possible to end up in a hospital outside of the home state, most people should have both documents to cover all the possibilities.

Boomer:  To avoid future family squabbles, how should you choose the executor to your will?

Lese:  The choice of an executor is extremely important and deciding who to appoint is not always straightforward.  If one is married, in many cases, one will choose the spouse. If there is no surviving spouse, but there are adult children who are financially responsible, in many cases, a parent will choose all the children to act together as co-executors.  But there are many cases where one may choose to deviate from this approach.  For example, a person might want to appoint a co-executor to act with the spouse so that the spouse will not be making important decisions alone.  Also, if there is no surviving spouse, while appointing all the children as co-executors works if the children get along, and avoids hurting any feelings which might occur if one child is named as sole executor, it is not always practical.  For example, requiring the children to act together as co-executors may lead to a stalemate or worse.  In such cases, it is common to choose a family friend, a professional advisor, such as a lawyer, accountant or financial planner, or a corporate trustee as co- or sole executor.  This way, there will be a third-party who can make decisions or who can work with the children to assist them and break any ties.  However, cost is also a factor.  By law, executors are entitled to compensation, usually based on the value of the assets passing under the Will.  Since family members may be willing to act as executors without compensation, that is obviously a benefit, but cost alone should not be the sole criteria when making such an important decision.

Boomer:  How can boomers best manage assets to leave to their surviving children and reduce estate costs?

Lese:  The federal estate tax exemption is now $5,430,000 and will increase each year for an inflation adjustment.  With this increased exemption, fewer people are affected by estate taxes.  As a result, the focus of estate planning for the majority of people is now on making sure that their wills and/or revocable trust agreements accurately reflect their wishes.  Issues such as the choice of executors, trustees and the terms of any trusts for the spouse and/or children are still important.  For example, it may be desirable to create a trust to hold the assets that are bequeathed to a child to protect such assets in the event the child gets divorced.  Also, many or all people will want to sign a power of attorney, health care proxy and living will.  These documents can be extremely important, as they provide the only means to give a person authority over one’s personal affairs without going to court to have a guardian appointed.

For high net worth people for whom estate planning to reduce estate taxes is still relevant, there are numerous techniques available such as grantor retained annuity trusts, qualified personal residence trusts and sales to grantor trusts, to name a few.   However, before implementing these techniques, it is important to consider the possible downside that could arise if, for example, a highly appreciated asset is given away during lifetime. Such a gift may result in a reduced estate tax, but may cause a substantially increased income tax liability which may mitigate or outweigh the estate tax savings.

Boomer:  Are there any recent developments in tax laws that have an impact on estate planning?

Lese:  The most recent developments in the tax law relating to estate planning are relatively minor.  For example, Congress passed a highway bill that included a provision which requires executors of estates to provide beneficiaries with a statement that will report their (stepped-up) tax basis in property that they receive from the estate.

Lese also added there is a general misunderstanding about the desirability of giving assets away to reduce the size of one’s taxable estate.  Our analysis has shown that in many cases, giving assets away actually works against the client and his or her family.

*This conversation was edited for length and clarity.