Monday, January 19, 2009

A Great Time to do Advanced Planning

With the current economic slowdown and the very real losses that have been incurred in people's retirement and other investment accounts, many people feel that this is not a great time to do estate planning. Most of the people that I have spoken with are waiting to see what the new congress and president do once they are sworn in, and they are happy and content to sit by and watch what happens.

Unfortunately for many of them they are missing a great time to do some advanced planning. I have not had an opportunity to blog on many advanced estate planning techniques yet, but there are several that depend on several key federal interest rates. Two important rates for many advanced planning techniques are the applicable federal rate and the 7520 rate. Future blog posts will investigate both of those rates and how they are used for various planning techniques, but for January of 2009, the long term applicable federal rate compounded annually is 3.57% and the January 2009 7520 rate is 2.4%. These rates are very low and are used for various planning techniques such as installment sales to defective grantor trusts, Grantor Retained Annuity Trusts, and other techniques.

In addition to the above, the fair market value of businesses, real estate, and investments in general are extremely low. These lower fair market values, coupled with the low rates described above, have made it a very good time to do advanced planning if you are a candidate for business succession, or are a high net worth individual who wants to transfer as much of your estate to your heirs in a tax efficient manner as possible. If you have additional questions about these issues, feel free to contact me to discuss and I will be expanding upon these issues in future posts.

New Years Resolutions

Believe it or not, but I had a New Year's resolution to blog more often. I've heard from a few people that the posts are helpful in thinking about what they should be planning for, and the idea was that I would try to write at least a post or two per week in the new year. Well, it is now January 19, and here is the first post of the new year. My point is not that we should be focused on any type of failure on a New Year's resolution, but from a planning perspective we often have the best of intentions and we often leave them incomplete thinking that we will have another day, another week, another month to finish them. While it is difficult for us to think about what would happen to our families if we do not plan for the worst, things do happen that show us how important it is to plan and complete the planning that must be completed.

One example is of a client of mine. This client came into my office at least six months ago and we discussed several things that he and his wife needed to do in order to clean up their existing planning that a prior attorney had drafted for them. The changes were mostly things like changing trustees (due to the fact that the people who were named as successor trustees had all moved out of the area and had lost contact with them), their health directives were missing the relatively new HIPAA authorizations, and they had no powers of attorney for asset management. However, the biggest portion of the clean up work was trust funding. Very few of their accounts were titled in the name of their trust and only one of their multiple real estate holdings were properly titled. We started working on these items and I had draft documents to them in a matter of weeks. Unfortunately life happened and the weeks turned into months and my messages, emails and phone calls were continually returned with excuses such as "we haven't read them yet, we need more time, life is really busy at the moment".

Then the holidays arrived and they asked me if we could set a meeting after New Years in order to finalize the drafts that they had had for six months. Unfortunately for the clients, the husband passed away over the holidays and we are now dealing with the ramifications of not completing the documents that they had had for over half of a year. When I tell this story to friends and colleagues they almost all ask about the age of the decedent. Would you be amazed if I told you he was in his mid fifties?

Based on this story I have convinced many people to finish their planning or to start if they have not given any of these issues proper attention. The goal that I have with this is that every reader should at least stop and consider what the status of their own planning is and what they need to do in order to finish it. If you haven't thought about your own planning or if you have planning that is less than complete, then make sure that you contact your estate planning attorney in order to finish it.