ESTATE PLANNING

A good estate plan involves more than preparation and execution of a will or even a trust.   A good estate plan incorporates a client’s unique objectives and personal considerations and summarizes how his/her estate is to be administered in the event of incapacity during lifetime and administration including disposition of property following death.   A good comprehensive estate plan includes asset protection considerations and preservation of assets from undue income tax burdens.   F. Hunter Hampton’s solid background in taxation and in estate planning and administration, including considerations in planning for both blended and nontraditional families and business succession planning for family owned closely-held business interests, can support the preservation of wealth and minimize stress for the surviving family.

The firm offers probate, estate and trust administration services including post-mortem planning, estate proceedings and legal actions, and preparation of tax returns including:

    • Estate fiduciary income tax returns
    • Trust fiduciary income tax returns
    • Decedent final income tax returns
    • Gift tax returns, coordinating necessary documentation to support valuations, including valuation discounts assigned to a gift
    • Interim and final accountings required by probate or estate beneficiaries

Estate planning is a process to identify, protect and manage assets in the event of incapacity or death.   Each estate plan is customized to match each individual client’s goals and objectives, needs and special circumstances for optimal protection, administration and efficient transfer and distribution to remainder beneficiaries.   Throughout the estate planning process, client collaboration, including collaboration with client advisors, is encouraged to assure a thorough understanding of planning considerations and identifying documents incorporated in an estate plan to achieve client individual objectives and circumstances.

        Generally, an estate planning engagement requires at least three client meetings:  (i)  an initial meeting to review an array of planning considerations including identification of beneficiaries and assets and identify options;  (ii) a second meeting using individualized illustrations to assist in a through and preliminary review of draft documents identifying any appropriate corrections, modifications or changes needed prior to finalizing documents;  (iii)  final meeting to review the finalized documents with emphasis on any modifications made and complete execution.

    • Assure titling of client assets and any beneficiary designations are consistent with client’s estate plan, including transferring title or beneficiary designation into name of a trust incorporated into the estate plan as appropriate and review title of assets as appropriate to achieve asset protection
    • Collaboration with each client to verify client objectives as to distribution of assets to family members, other beneficiaries and charities
    • Identify whether distribution to beneficiaries is outright or continued in a trust for asset protection, a beneficiary’s special needs, or wealth accumulation
    • Determine whether ultimate distribution to minor descendants is time-, age- and/or incentive-based
    • Evaluate advantages of generation skipping to provide continuation of asset protection for long-term wealth preservation
      • Identify fiduciaries discussing fiduciary duties and responsibilities
    • Indexing and organizing final estate documents, titles, assignments and other estate assets supportive documents in self-contained single folio binder, allowing ready-access and ease the administrative burden on family members

Although the threshold to access estate taxes has been raised where estate tax considerations generally are not applicable to most estates, fiduciary income taxes are a significant consideration.   The threshold for both estate and trust fiduciary income taxes are accelerated where the highest income tax rates are compressed and applied at a very low threshold as well as the additional 3.8% net investment income tax.  Planning can be included in trust documents to minimize fiduciary income taxes, the additional net investment income tax and capital gains tax.  Additionally, post-mortem planning may allow distribution, including an election after year-end, to distribute income out to lower taxed beneficiaries pushing income out to lower tax rates.

Periodic Reviews
After an estate plan has been approved, executed with titles and beneficiary designations finalized, periodic reviews are recommended to ensure client goals and beneficiary designations remain consistent and accurate, assets are titled appropriately, and trusts are properly funded. During this time, clients are also advised about legal and tax law changes that might affect prior decisions.

For many clients, a basic estate plan with a simple last will and testament may be sufficient to provide peace of mind and aid and direct families in the event of a loss.   Even simple estates, however, require review of assets including available beneficiary designations as appropriate to avoid probate.   In reviewing client’s needs and objectives it can be determined whether a simple last will and testament will suffice coupled with beneficiary designations.

A basic estate or complex estate plan will also include the following

    • Durable General Financial Power of Attorney:   A power of attorney is a legal document that gives another designated person the authority to act on an individual’s behalf, including the power to act with regard to a person’s financial affairs, or as the scope of powers under this legal document are otherwise stipulated. Because life events can spur the need for a power of attorney for any adult, it is recommended that such document is in place.
    • Advance Medical Directive:    An advance medical directive is a legal document that provides a person’s wishes with regard to final medical care to avoid any confusion with family members.   Likewise, this legal document designates the person, the agent, one desires to make medical decisions on their behalf and the scope of this authority.   Like the Durable General Financial Power of Attorney, it is highly recommended for any adult.

Establishing a trust can be used to provide investment management of assets, protect assets from a beneficiary’s creditor claims or subject trust assets to claims in a divorce.   Trusts are commonly established to preserve and protect wealth, provide for minor-aged, elderly or handicapped beneficiaries.  Special consideration in planning with trusts include the following:

Blended and Non-Traditional Marriages

Blended or non-traditional marriages frequently call for special trust considerations to satisfy client’s goals equitably and efficiently; Specialized Marital Trusts or Credit Shelter Trusts can provide for a surviving spouse/partner and children from prior marriages.

Special Needs Trust

A Special Needs Trust may be warranted to preserve eligibility for certain benefits such as Medicaid of Supplemental Social Security where a beneficiary has special needs.

Closely-Held Family Business/Investments

Trusts have traditionally been used to protect closely-held family businesses and/or investments for generations.   Fiduciary income tax planning is of significant import in using trusts.   An active trade of business interest held in trust may qualify for pass-through of the trust share of qualified business deduction under Section 199A of the Tax Cuts and Jobs Act of 2017.   While many individuals may not qualify for pass through of this deduction because of income limitations for the qualified business deduction, generally a trust may qualify for the deduction to offset income.   Likewise, careful planning is needed for passive investment income.   In addition to the accelerated compressed income tax rates imposed on trusts, trusts are further subject to the net investment income tax at a very low threshold.    As a consequence, care is needed in fiduciary income tax planning for trusts.

Retirement Accounts including IRAs

Inclusion of retirement accounts, including Individual Retirement Accounts (IRAs) in trust can help protect assets until they are distributed to beneficiaries. However, care must be taken to avoid unwary income tax consequences upon the outright distribution of a share of retirement accounts to allow for continuation of income tax deferral status when there is more than one beneficiary.

Defective Grantor Trusts (i.e., GRATS)

Defective Grantor Trusts are used often in planning for larger more complex estates to transfer growth assets out of an otherwise taxable estate and minimize Gift taxes associated with the transfer.

Irrevocable Life Insurance Trusts/ Irrevocable Grantor Trusts

When planning for liquidity for more complex estates, Irrevocable Life Insurance Trusts may allow insurance proceeds to be received outside of an otherwise taxable estate. Irrevocable Grantor Trusts can also be used for life insurance and allow the grantor the flexibility of replacing life insurance with comparable growth assets.