On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, which doubled the federal estate tax exemption. Now, upon death, an individual can pass $11.4 million free of estate taxes and a married couple can pass $22.8 million. With the federal exemption so high, it is easy to ask, “Why on earth would anyone need an estate plan? Isn’t estate planning only for rich people trying to save on taxes?”
The short answer is no. While estate taxes are a consideration when developing an estate plan, they are only a small piece of a much larger puzzle. A great deal of attention is given to the enormous federal exemption limits, but it’s equally as important to consider the State of Minnesota’s estate taxes – and the limits are much lower. In 2019, a Minnesota resident can pass up to $2.7 million free of estate taxes and a married couple can pass $5.4 million. I know what most of you are thinking: $5.4 million is still a lot of money and estate taxes will not be a problem for me. This is where the other pieces of the puzzle come into play. In estate planning, everyone’s puzzle is different. We all have different sized pieces for our family, financials, and belongings. Ultimately, we have this ideal vision of our puzzle, fully assembled, once we are gone. Everyone gets what they want, when they want. However, in order to achieve this perfectly-assembled puzzle, careful planning is necessary. Estate Planning allows you to discuss your personal pieces with an expert and receive advice that is exclusive to you and your goals, so you achieve the completed puzzle you desire.
While everyone’s puzzle is different, below are 8 examples of the pieces that yours may include.
- Provide for your family or loved ones
Depending on who you want to receive your assets, an estate plan may be necessary. If you do not have a Will, the State of Minnesota has already determined where your property will go. In some cases, your property would go to who you would want (e.g. surviving spouse and/or children), but there are always situations where that is not the case. What if you are part of a blended family where you and your spouse both have children from a previous marriage? What if you’d like to include your siblings and your spouse? These are just a few examples of situations where you would need a plan in place.
- Allow beneficiaries to obtain your property with minimal delay or expense
There are several vehicles that can be utilized to avoid delays and expenses. Unless you have planned otherwise, when you die, there will be a probate to administer your estate. I’m sure most of you shake just from hearing the word “probate.” Chances are most of you have been involved with or heard others’ horror stories about a specific probate. Probate probably does get more of an unfair reputation than it deserves. However, it certainly will add time and expense to your estate when you’re gone.
- Plan for your incapacity
Estate planning doesn’t just include when you die. Equally as important is planning for what happens if/when you become incapacitated and lack the ability to manage your own affairs? Who has access to your bank accounts to pay your bills? Who is making health care decisions for you? Without proper planning, a court proceeding may be necessary for a loved one to do that.
- Make charitable donations and gifts
Do you have other people or causes you’d like to donate to, other than just your family? Estate planning can cover charitable donations as well.
- Provide for loved ones who have special needs or circumstances
Many of us know someone who is affected by a disability. Sometimes a child or loved one has special needs due to physical or mental limitations. Sometimes a surviving spouse’s ability to earn a living changes due to an accident or disability. Situations like this create unique situations that often require special planning and can be accomplished in your estate plan.
- Ensure your business continues smoothly when you are gone
What happens to your interest in your business when you die? Can someone take over your roles and responsibilities? Will a partner buy your share out? These topics can be addressed with proper planning.
- And, of course, taxes
Although the exemption limits are high, some of you may be above the exemption limits – especially for the State of Minnesota – and you may have a taxable estate. Why pay more to Uncle Sam or the State of Minnesota than you have to? Proper planning is necessary to achieve this. If you don’t believe me, consider that Prince will pay an estimated $100 million to the government in taxes, all because he didn’t have any planning done.
- Finally, and maybe most importantly, proper estate planning can ease the burden on your loved ones when you are gone.
All the puzzle pieces listed above, whether applicable to you or not, have one thing in common: They allow for potential problems and fighting amongst people when you’re gone. The reason probate gets a bad reputation is usually because of lack of planning. As we all know, money can do funny things to people, so ask yourself: Would you rather complete the necessary steps to ensure the puzzle gets completed as you want, or wait for others to pick up the pieces when you’re gone?
Paul D. Funke and the attorneys at Hansen Dordell handle estate planning for individuals and couples. If you or a loved one are interested in finding out more about estate planning and what Hansen Dordell can do for you, please give Paul D. Funke a call at 651-482-8710.