Ask the Experts: Guide to Wills and Estate Planning

Planning for what happens to your assets following your death may not be the most pleasant of tasks, but it’s important. We asked experts to identify some of the most important elements of wills and estate planning.

Our panel:

Thanda Fields Brassard, Esq., Vice President & General Counsel, Fiduciary Trust Company of New England.
Elizabeth Brown, Esq., Senior Counsel, Primmer, Piper, Eggleston & Cramer.
Whitney A. Gagnon, Associate, Trusts and Estates, McLane Middleton.
Elizabeth M. Lorsbach, Esq., estate planning, estate and trust administration, elder law, and tax law, Sulloway & Hollis.
Seth Webber, Principal, Valuation Group, BerryDunn.

HOW, WHY, WHEN: GETTING STARTED

When should I start estate planning, and how do I begin?

Brown: “Every person over the age of 18 ought to have a simple estate plan that includes, at a minimum, a power of attorney and a health care power of attorney. A parent’s ability to make financial and healthcare decisions ends when their children turn 18. Without a power of attorney, if a child becomes disabled, parents do not have the authority to make health care decisions or manage money for their child and, in some cases, may need court approval to act on his or her behalf. If you are over the age of 18, now is the time to contact an experienced estate planning attorney to schedule an initial consultation. The primary goal of the initial consultation is to allow the attorney to learn about you and your family. In addition, it is an opportunity for you speak with a professional about your hopes, fears, dreams, and aspirations for your family. There is no need to bring every account statement and information regarding all of your assets to the initial consultation. General information regarding your assets and how they are titled is all that is necessary.”

Gagnon: “It’s never too early to plan for and take control your future. Any person age 18 or older should engage in estate planning. The first step in the process is to meet with an estate planning attorney to discuss your personal circumstances. Based on your wishes and your family and financial information, the attorney will be able to provide you with options and guidance to achieve your goals. The essential components of a modern New Hampshire estate plan include health care advance directives, durable powers of attorney, pour-over wills, and revocable trusts. These documents are all revocable, meaning that you may change them in any way, or revoke them in their entirety, so long as you have the requisite capacity.”

What documents should I have with me when meeting with an attorney to discuss my will/estate plan?

Brassard: “You should have information about your assets, including values, where they are located and how the assets are titled (individually, joint, etc.). You should come to the meeting with a sense of where you want your property to go after you die, and who you want to serve as your fiduciaries if you become incapacitated or after your death. You should also bring your current documents if you have them, along with any documents relating to other trusts that you did not establish, but which exist for your benefit. Your attorney will want to review those documents to determine what happens to those assets after your death and whether you have any control over them.”

Webber: “The following items are helpful when creating a tax-efficient business succession plan: Business succession goals (retain family ownership, generate liquidity, etc.); identification of other business owners; retirement budget and needs; other sources of cash and funding for retirement; charitable intentions; shareholder agreement and buy-sell agreement; will, advanced directive, and power of attorney.”

What is the difference between a revocable and irrevocable trust?  

Lorsbach: “The key difference between a revocable and an irrevocable trust is that a revocable trust can be changed at any time by the person or persons who created the trust, while an irrevocable trust cannot be changed by the creators of the trust. Revocable trusts are used as a basic estate planning tool, to avoid probate upon the death of the person who created the trust, and to provide for long-term management of assets for named beneficiaries without court oversight. Irrevocable trusts have those same benefits, but are used sparingly because once the creator of an irrevocable trust funds the trust with his or her assets, he or she gives away control of those assets. There are, however, reasons for giving assets to an irrevocable trust, including reduction of taxes on the estate at death, protection of an asset such as a family camp for future generations, or a guarantee that funds will be available for a needy beneficiary, such as a child with a severe disability.”

WILLS AND ESTATE PLANNING IN NEW HAMPSHIRE

What makes New Hampshire a great place for establishing and administering trusts?

Brassard: “New Hampshire has some of the best trust and tax laws in the nation. In fact, over the past decade or so, New Hampshire has emerged as a leader in the race to be the best jurisdiction to establish and administer a trust. New Hampshire’s robust trust laws, which provide a thoughtful and reasonable approach to trust administration, have definitely received more attention from out of state attorneys in the last five years or so. New Hampshire’s trust laws allow for flexibility in administering trusts, by allowing the use of directed, divided and delegated trust concepts, among others. In addition, if a trust needs to be ‘fixed,’ New Hampshire has some of the best laws in the nation regarding decanting and trustee modification of trusts. Finally, New Hampshire is one of a few states that allows for establishment of asset protection trusts, and is the first state to allow for the establishment of civil law foundations. The trust court in New Hampshire is unique in that it allows any trust disputes before it to be heard by a judge with experience in these matters, which are unique from other disputes.”

What is the intestate distribution in New Hampshire, and what are the benefits of avoiding it?

Gagnon: “Intestacy laws dictate which family members will inherit your probate assets after your lifetime, and in what amount.  In the absence of a validly executed will, your probate assets will be distributed in accordance with the intestacy laws, which may not be consistent with your objectives. For example, in New Hampshire, the laws of intestacy provide that if you are survived by your spouse and children, then your spouse will receive the first $250,000 plus one-half of any remaining assets and your children will receive the other one-half. This may cause an undesirable outcome particularly if your children are minors.

“Married couples without children might be surprised to learn that in the absence of a validly executed will, all probate assets will not automatically pass to the surviving spouse upon the death of the first spouse to die. If you are survived by your spouse and your parents, then your parents will receive a portion of your probate assets. The intestacy laws become more complicated when addressing blended families.  If you are survived by your spouse and he or she has children from a prior marriage, then your spouse will receive a reduced amount.  Your spouse’s inheritance will be further reduced if you have children from a prior marriage. With an estate plan in place, you have the ability to control who will inherit your assets after your lifetime, and in what manner and amount.”

What particular challenges do non-traditional families face in estate planning?

Brassard: “Non-traditional families may not be afforded the same protections as traditional families, depending on the circumstances. For example, an unmarried couple is usually not treated as exactly the same as a married couple for tax and property law purposes. It is even more important for non-traditional families to seek legal advice when it come to their estate planning, as the ‘default’ rules often available for a traditional (married) couple may not apply. If care is not taken to draft estate planning documents that accurately reflect the non-traditional family’s wishes, the property may not pass as the donors intend.”

Brown: “Today, many families include children, stepchildren, non-married co-habiting adults, etc. I would argue estate planning is more important for blended and non-traditional families because existing intestacy laws do not adequately protect them. New Hampshire’s intestacy laws protect spouses and children, but do not recognize life-partners. Consequently, if one of the partners to the relationship dies without a will or a trust in place, the consequences can be catastrophic.”

AVOIDING PITFALLS

What are the possible pitfalls of attempting estate planning myself using online tools?

Lorsbach: “I have handled several estates for people whose wills were prepared online, and have also been asked to review and revise estate plans that clients prepared online. One common problem with online documents is that they do not comply with New Hampshire law, even when the online site claims otherwise. Another common issue I have seen is that wills prepared online are often improperly executed, causing the will to either be invalid or require a witness to attend a hearing to prove the will. The cost of such a hearing can be as much or more than the cost of having the will prepared by a professional. A third issue I have seen with online wills is that people sometimes unintentionally disinherit beneficiaries, in particular spouses, thinking that passage of assets to a spouse is automatic. Finally, legal terms are often used incorrectly by people drafting documents online, leading to all sorts of unintended consequences.”

What can happen if I don’t occasionally review my estate plan? How often should I review my estate plan?

Brassard: “Trust and tax laws change over time. Some of these changes are well-publicized (such as a major increase in the federal exemption), but some are not. It is important to think about your estate plan periodically to make sure that your intentions and wishes have not changed, but also to be sure that the laws have not changed to the detriment of your estate plan.”

Gagnon: “You should review your estate plan every five years to confirm that it remains consistent with your current objectives and in accordance with the current laws. You should also review your estate plan after the occurrence of significant events including the birth of a child, the loss of a loved one, marriage, divorce, or a change in your health or financial circumstances.”

BUSINESS STRATEGIES

How can wills and estate planning play a role in business succession planning?

Webber: “Estate documents (wills and trusts) should be coordinated with and reinforce the intent of the owner’s existing business succession plans. The succession plans are a road map to direct future generations regarding leadership, planned liquidity events, future business direction, and other items. In the event of the owner’s untimely death before a succession is complete, the estate documents should be consistent with the succession plan so that it can be completed in accordance with the identified strategy.

“Wills (i.e., legal documents expressing how property is to be divided upon death) often contain instructions that are key to business succession planning, such as who succeeds to ownership under specified conditions and who manages what functions of the business. This information should be communicated to key people in advance so that the owner’s wishes aren’t a surprise revealed after the fact.

“Estates can also be used as a means of moving wealth from one generation to the next in an orderly and tax-conscious manner. For example, a small handful of states, including New Hampshire, allows for dynasty trusts, which are used to hold ownership in a company indefinitely. Income from companies held in dynasty trusts is available to heirs, but not direct ownership of the underlying assets. Given the current federal estate tax limits, dynasty trusts may be a useful vehicle to transfer economic benefit to multiple future generations.”

When/why should someone consider gifting as part of their overall estate planning?

“When shares are transferred through an estate, the shares are adjusted to market value on the date of death, re-establishing their tax basis. Heirs benefit from the higher basis because it will limit future capital gains. As long as the total value of the estate is less than the 2019 federal estate tax exemption of $11.4 million, there would be no federal estate tax due. While potentially more tax-efficient, the strategy of transferring shares through an estate delays the ownership for successive generations.

“Similar to transferring shares through one’s estate, gifting shares only creates a taxable event if the value of the gifts exceeds the lifetime exemption. In the case of shares that have the potential to grow significantly in value, gifting during lifetime can transfer the future appreciation to the next generation. Gifts of minority interests can also be discounted for lack of control and marketability, reducing potential tax exposure. Gifting during one’s lifetime also allows for the immediate transfer of shares to descendants, while remaining in a capacity to advise them in the management of the company.

“In contrast to inheriting shares through an estate, grantees of gifted shares inherit the same tax basis as the grantor, which typically results in higher capital gains tax implications if the grantee subsequently chooses to liquidate the shares. Another important consideration for gifting is the fact that gifting of shares doesn’t generate liquidity to the grantor. Therefore if the grantor needs liquidity for retirement, gifting shares should be considered only when projected liquidity needs have been funded.”

How should the lifetime estate tax exclusion affect my estate planning?

Webber: “Historically, a key estate planning consideration was the lifetime federal estate tax exemption. However, the increase in the federal exemption from $675,000 in 2001 to $11.4 million in 2019 has reduced the number of estates that may be affected by federal estate taxes. For many people, the priority has shifted from estate tax minimization to maintaining an orderly transition of ownership, as well as income tax considerations. For example, if an owner has an estate value less than the exemption, holding the shares until his/her death will give the heirs an increase in tax basis, reducing the income tax consequences on their sale. If one is still impacted by the estate tax limit, there are multiple tax planning opportunities to limit exposure. Of course, these strategies should still be matched to your succession planning goals.”

TALKING THE TALK

What is the difference between a will and revocable trust?  

Lorsbach: “The key difference between a revocable and an irrevocable trust is that a revocable trust can be changed at any time by the person or persons who created the trust, while an irrevocable trust cannot be changed by the creators of the trust. Revocable trusts are used as a basic estate planning tool, to avoid probate upon the death of the person who created the trust, and to provide for long-term management of assets for named beneficiaries without court oversight. Irrevocable trusts have those same benefits, but are used sparingly because once the creator of an irrevocable trust funds the trust with his or her assets, he or she gives away control of those assets. There are, however, reasons for giving assets to an irrevocable trust, including reduction of taxes on the estate at death, protection of an asset such as a family camp for future generations, or a guarantee that funds will be available for a needy beneficiary, such as a child with a severe disability.”

What is an integrated approach to estate planning, and whom would you work with to achieve an integrated estate planning?

Brown: “The most successful estate plans are created with cooperation from the clients and their trusted advisors, which includes their financial planners, to avoid expensive and time-consuming mistakes. A common mistake in estate planning is when the attorney drafts a plan that includes a revocable living trust, but the client fails to transfer the assets to the trust, and the plan fails to work as planned. If assets are not titled in the name of the trust, the revocable trust agreement has zero value to the client because the successor trustees cannot manage assets that are not retitled to the trust. If the estate planning attorney is working with the financial advisor, they can make sure that the terms of the estate plan are implemented and the assets are retitled to the trust estate.”

What is a generation-skipping trust, and in what situation would this be a valuable estate planning strategy? 

Lorsbach: “A generation skipping trust is, according to federal law, a trust in which the primary beneficiary or beneficiaries are two or more generations below the creator of the trust. As an example, if Pete and Mary have two children, and four grandchildren, and they set up a trust solely for the benefit of their grandchildren, that trust would be considered a generation skipping trust. These trusts are used to avoid payment of federal estate taxes upon the passage of assets from generation to generation. However, people need to be careful about using this technique because a federal  generation skipping tax  exists, which assess a tax on generation skipping trusts, which are in addition to the estate tax that might be due on such trusts. While the use of generation skipping trust can be a powerful planning technique, use of these trusts has decreased in recent years given the current level of the federal estate tax.”

 

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