If you have children, they are likely at the center of your attention as well as the primary or exclusive beneficiaries of your estate. If you have responsible children who are both willing and able to participate, I urge you to consider the advantages of involving them in your estate, tax and long-term care planning now.
Assume you have a revocable living trust in place and you are the trustee or co-trustee. Identifying the successor or alternate trustee can be challenging. If you have a responsible child or children, you may have named a child to this role. Otherwise, you may have given the responsibility to another individual or perhaps a professional or a financial institution.
If you have named a child as your successor trustee, be sure that he or she knows you have done so. Ideally, you will involve that child in your planning so that he or she understands the nature of your trust and the responsibilities. He or she will have to serve as trustee upon your death or if you become incapacitated. It is less than ideal for this appointed child to learn about your trust and the responsibilities without warning. While this may seem obvious, it is typically and sometimes painfully overlooked.
The same point applies regarding your durable power of attorney and your advance health care directive. If you are married, you likely named one another as your primary agents. You may have named a child as your alternate in either or both of these documents. Again, your child should be aware of this responsibility and what it entails. The responsibilities under a durable power of attorney, which relates to the business of life, are very different from the responsibilities under an advance health care directive, which deals with health-care decisions.
At a minimum, share a copy of your advance health care directive with your appointed child and discuss its contents, ensuring that your wishes are clarified and ultimately honored. By involving your child in discussions, and perhaps including your attorney, you may be pleasantly or unpleasantly surprised by the response.
Long-term care planning
Most of us want to remain at home and avoid moving to a health-care facility. If it’s your wish to age in place, do your children understand your wish and its implications? Do they know the potential costs of home care and whether or not you have long-term care insurance?
You may feel so strongly about being cared for at home that you want to remain at home even if it is not advised by the family physician. This may involve 24/7 care, which can be enormously expensive. Be sure that your children and your appointed trustee, in particular, understand this.
If you want to be sure that your assets are protected for your children and grandchildren, you may prefer planning that ultimately allows for eligibility for the state Medi-Cal program, which can pay all or most of the cost of nursing-home care. This inevitably involves transfers to trusts and/or establishing trusts for the benefit of your children. It then requires proactive planning on the part of your children to ensure that you have a lifelong safety net.
In short, planning for the cost of long-term care should be done in partnership with your children. This is particularly true when the child or children are given formal roles in your long-term care planning.
Avoiding estate tax
While the current level of estate-tax protection is extremely high at $11.7 million per person, this law will sunset at the end of 2025. On Jan. 1, 2026, the level of estate-tax protection drops to approximately $5.5 million per person. While still substantial, this may expose your estate to the punishing 40% estate tax. If you live in this community, your home is extremely valuable – and the value increases daily. This alone may result in estate-tax exposure.
Be aware of proposals in Congress to reduce the level of estate-tax protection even more substantially. Those same proposals would dramatically increase the level of tax to 55% or even higher. As a result, you may be motivated to take steps to reduce or eliminate your estate-tax exposure. Inevitably, this will involve your children and trusts you might establish for their benefit.
If you consider significant wealth transfers to the next generation, will you be comfortable giving your children complete control of these assets? Do you have a solid sense of the level of responsibility and money management skills possessed by each of your children?
We encourage you to involve your most responsible child and children in your tax planning. In addition to maximizing estate-tax avoidance benefits, your quality of life could be directly impacted. There are also the potential “trust baby” implications of such asset transfers. These issues are best explored in conversations with your children, ideally involving your estate planning attorney, if he or she is willing to facilitate a family discussion.
I hasten to add that involving your children and revealing your planning and your assets to them is only appropriate if you are comfortable with this approach. Your children may not be willing or able to handle such discussions. You may be uncomfortable with potential disputes among family members. In an ideal world, you will involve your children and share in proactive planning.
Michael Gilfix, Esq., is a partner at Gilflix & La Poll Associates in Palo Alto. For more information, call 493-8070 or email MG@Gilfix.com.