1. Money
Julie Garber

What is Traditional Estate Planning, and Why Doesn't It Work Anymore?

By October 10, 2012

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In 1995 when I started out in the legal practice of estate planning, the traditional approach to planning was mainly to address two grave concerns - avoiding probate and minimizing estate taxes. (And if the clients had minor children, then a third grave concern was added - choosing the right guardian for their children.) Back then the federal estate tax exemption was only $600,000(!), so minimizing estate taxes was a grave concern for many clients since a house plus some 401(k) assets plus life insurance was all it took to exceed $600,000. Of course, even today avoiding probate is still a grave concern for many - why force your loved ones to go through probate if it can be easily avoided (yes, probate really can be easily avoided)? But fast forward to twelve years into the new millennium, where people are living well into their 90s, families are blended and often times broken, and lawsuits and divorce rates have soared, and where are we now?

In order to understand where we are now, we need to understand what estate planning is all about. In simple terms, estate planning is a systematic approach to making a plan for what happens to you and your property in case you become mentally incapacitated and making a plan for what happens to your loved ones and your property after you die. While 17 years later this definition remains the same, today the focus of the "planning" part of estate planning has significantly changed. Why? For the following list of reasons, which is certainly not an exhaustive list but a mere drop in the bucket:

  • Since people are living well into their 90s, long term care planning has become a significant part of estate planning.
  • Since many families are blended and/or broken, estate planning attorneys must be adept counselors and mediators in addition to good estate planners.
  • Dysfunctional families need creative trust solutions to protect beneficiaries from inside influences including their own bad decisions, overbearing spouses and deadbeat children, and outside influences including predators and creditors.
  • Since the federal estate tax exemption is currently $5.12 million but is scheduled to decrease drastically to $1 million in 2013, creative gift planning for wealthy individuals is all the rage.
  • Since a handful of states collect estate taxes and/or inheritance taxes at the local level and many people own property in more than one state, estate planning attorneys need to collaborate with attorneys in other states in order to fully meet their clients' estate planning needs.
  • The same holds true for people who own property in other countries - estate planning attorneys need to collaborate with foreign attorneys in order to fully meet their clients' estate planning needs.
  • With the collapse of the economy, estate planning attorneys need to be even more aware of asset protection strategies, Medicaid estate recovery, filial responsibility, and insolvent estate problems.
  • Since modern technology has created a new type of property known as "digital assets," modern estate plans need to address this new type of property through "digital asset estate planning."

Yes, the good old days of planning to avoid probate and minimize estate taxes for a couple who have been married for 40 years and have two well-adjusted and financially independent children and four darling grandchildren are long gone. This is what has made traditional estate planning obsolete.

October 17, 2012 at 1:16 am
(1) Cyborg1939 says:

Thank you for this nice piece.

Lots of useful links and the outline of key estate planning issues is most appreciated.

It must be serendipity for estate lawyers that we have a failed government that changes the rules of the game every few years. Business keeps booming, I suspect.

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