People hear the word “plantation” and think that end-of-life financial planning is only for the very rich. They couldn’t be more wrong. The very wealthy have the knowledge to surround themselves with lawyers and accountants who protect them from the dangers of an improperly planned estate. The people most disadvantaged by the legalization process and estate taxes are the country’s middle class.
I am married and I have a daughter who is almost two years old. I like in a house that used to have equity in it but is mostly a mortgage these days. I rented my car, owned a small business, and paid student loans for my wife and myself. We are a two-income household with little money in the bank, but neither of us will be able to retire anytime soon. If this scenario sounds similar to you, you may need a plantation plan similar to the one I currently have. My real plan includes th following:
Two Revocable Living Trusts – You and your spouse will be each other’s trustees. You will have the same access to your assets as you do now. When the first spouse dies, the maximum tax-free distribution allowed for the year of death will fund the newly created Bypass Trust. The remaining assets in the deceased spouse’s trust will fund the newly created Marital Trust. The surviving spouse will have access to all assets in the spouse’s own Living Trust, as well as the newly formed Bypass and Marriage Trust. By setting up a trust in this way, when the surviving spouse dies, we will be able to pass all assets to the children while only paying half (if any) of the inheritance tax. Using this technique will save your kids over $500,000 in real estate taxes. In addition, the trust will avoid probate completely (saving tens of thousands of dollars) and provide complete asset protection to your children, meaning that no one will be able to touch the assets you leave behind, including divorce, creditors, or even litigation.
Two Property Assignments Become a Trust – This document helps fund the trust. For all real estate, we will sign and record the deed. For all bank and brokerage accounts, we will change the title of ownership. However, for private property, we do not have any written rights so we put the property in a trust and avoid endorsement by using the Assignment of Property into Trust.
Pour-Over Will – There are many negatives to distributing assets through Will. First, all assets must be proven. Second, a will does not provide control over the distribution of assets and does not offer asset protection to your beneficiaries. Another disadvantage is that the will becomes a public record as soon as the person dies. Since the Will will be recorded and everyone can see it, we wanted to make it as vanilla as possible. We simply state that the trust exists and its distribution will be handled by the trustee. We also state that any asset that you forget to entrust during your lifetime should be “poured” into trust immediately. The will will also be used to name your children’s guardians.
Financial Power of Attorney – If you become incapacitated, either unconsciously or mentally unconscious, you need to determine who you want to handle your financial affairs with. This document is very important to keep considering that most married couples travel and vacation together. If an accident happens to one of them, it usually happens to both.
Health Care Substitute Appointment – In the same line of thinking as the Financial Authority, if you become incapacitated, either unconscious or mentally unconscious, you need to determine who you want to handle your medical decisions. In addition, the Health Care Substitute Designation must also state if you wish your Substitute to be able to view your medical records. Without this HIPAA language, the hospital will not allow your surrogate to view your records and make an informed decision.
Will of Life – If you are in an “end of life” state, meaning that you are only kept alive by machines, the hospital will continue to artificially keep you alive, no matter what you want and at any cost. your family, unless you have a properly executed living will that allows your healthcare surrogate to give the doctor the necessary authorization to “pull the plug.”
Execution and Funding – The biggest mistakes I see when I review plans drawn up by other attorneys are execution and funding. I will be there to make sure that all your documents are executed properly. I will ask my staff to act as witnesses and I will act as a notary. Once the document is signed, I scan it and store it on my computer, as well as on my offsite server, so you can get a copy whenever you need it. I will also help you fund the trust. Creating trust is similar to building a safe; it can only protect what you put in it. I will draw up the necessary deeds and walk you through the personal account transfer to the trust account.
So many people waited until it was too late. Tomorrow is not promised to any of us. If you truly care about your children and want to protect them both financially and emotionally after you die, it is very important to have your inheritance plan ready as soon as possible.
