Volume 5 Issue 5

Sept/Oct 2001

© by Newland & Associates

With the advent of the new, bizarre Federal estate tax structure -- discussed in the May/June 2001 issue, Don’t Die Yet -- Wait Until 2010 -- what is a person to do regarding estate planning?

Congress will probably revisit this matter before 2010 and hopefully resort to a greater degree of legislative common sense. In the meantime, however, several practical approaches to planning estates of moderate size will continue to apply. By moderate size, I mean estates of less than $1,000,000 which, as of January 1, 2002, will not incur Federal estate taxes.

While the razzle dazzle of planning Bill Gates’ estate makes for interesting cocktail party discussion, estate planners should focus on practical issues, such as those addressed in this newsletter. Firstly, most estate planners agree that some form of trust, usually a Revocable Living Trust (RLT), is the most practical approach to estate planning.

Why should you pay an attorney to plan your estate and draft an RLT if you have an estate of moderate size, and no estate taxes would be due? Because estate planning is much more than avoiding taxation. Many of these non-tax considerations are covered in an article entitled Plain English Explanation of Revocable Living Trusts and Pour-Over Wills. 

Why is an RLT Needed? An Example

Mr. and Mrs. Dye have a $600,000 estate. Their adult daughter, Bee, and adult son, Zed, both have children (grandchildren of the Dyes). Mr. and Mrs. Dye have a home in Virginia, and properties they inherited in Maryland and West Virginia.

According to Mr. and Mrs. Dye, Zed is immature and Bee is in an unhappy marriage. While they trust Bee’s judgment, they are concerned that Bee’s estranged husband could possibly obtain access to what Bee may inherit from the Dyes. They feel it would be best if Zed and Bee did not receive funds from the estate until at least five years after the death of the second parent to die.

The Dyes also want their grandchildren to receive the funds Bee or Zed would have received, should either child predecease both parents, but only when the youngest grandchild of a family has attained aged 25. Also, the Dyes do not want prolonged probate in Virginia, Maryland or West Virginia.

What is the best, and only, vehicle to achieve all these objectives? An RLT. Why?

By transferring real estate and other assets to their RLTs, the Dyes can avoid probate in Virginia, Maryland and West Virginia. Moreover, transferring real estate or other assets to a Trust does not prevent selling or transferring the property. Control of the assets is not compromised.

An RLT can be structured to maintain assets for minor grandchildren until the youngest grandchild in a family reaches age 21, 25 or whatever age the Dyes feel the grandchildren have obtained maturity. A guess as to the best age is better than giving a large sum of money to a grandchild at age 18 and having it all spent on a Ferrari.

A key concept is that, in order for an RLT to achieve its purposes, the RLT must be funded; that is, assets have to be formally transferred. Without funding, such trusts are comparable to a car without a motor.

Currently, many believe that the estate tax has been repealed -- which is untrue. That belief, coupled with the prospect of dealing with death and lawyers, causes many to forgo effective planning. The fact is, however, that even with moderately sized estates, there is a need to plan and implement the plan.

Generalizations are fraught with exceptions, but it is safe to predict that, for many estates (like the one described above for the Dyes), probate would be much more expensive than adopting and funding RLTs. How do I know?

I have represented the estates of decedents who had RLTs and estates of decedents who did not, and I have knowledge of the expense of taking assets through probate.

If this newsletter and other related materials available on our Web site leave you with questions, give me a call.

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