Many of us in the estate planning field make it a practice to point out to our clients, as we send them out the door with their newly minted estate planning documents, that they should periodically review their plans and reconsider them in light of a variety of life events. These typically include deaths, marriages, divorces and births within the family or among selected estate planning actors, such as trustees and executors. Those of us who write newsletters or blogs (or both) often attempt to remind our clients of this advice from time to time.
Those types of life events can result in little tweaks to the existing estate plan. I think a related, but equally important bit of advice I would like to share with my clients is that for some clients it can be appropriate to have several very different estate plans over the course of their lifetimes. When a married couple with young children comes to me for estate planning, they are focused on what will happen to their children if they both die. They are often just starting out and don’t have an estate large enough to be worried about estate taxes, so a standard plan, with a will, trust, durable power of attorney and advance health care directive works just fine for them.
As the couple gets a little older and more successful, they may want to add an irrevocable trust of some sort to their plan, in order to reduce the size of their taxable estate. They can fund this with their annual gift-tax exclusion amounts up to a level that feels comfortable to them. This way they are not giving away a huge chunk of their estate at an age when they are still young enough to need a lot of money for themselves. The assets in the trust, as well as their appreciation over the years, will not be part of the estate and therefore not subject to estate tax.
Then, when they get a little older and successful enough that they can comfortably say they have more than enough to live on for the rest of their lives, they can start thinking about more aggressive wealth transfer strategies These are strategies that do involve removing large chunks of assets from the estate. They include charitable remainder trusts, where assets are transferred to a charity in a trust that pays an income stream to the donor for his lifetime, with the assets of the trust then being distributed to the charity on death. Another tool is an irrevocable life insurance trust funded with a large gift. This may result in the client using up his lifetime gift and estate tax exclusion amount, but it can result in a very large life insurance payout for the beneficiaries, which is not subject to estate tax.
