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Leslie Daff, JD, MBA - Orange County Estate Planning Lawyer

Friday, February 24, 2012

Tax & Estate Planning Tip #9: Your Parents' Estate Plan

Getting your parents to create or update their estate plan is a sensitive issue. As we watch our parents age, remarry, and/or become infirm, the need to plan becomes more urgent.  Here is what your parents should consider while they still have capacity:

  1. Prepare basic estate planning documents to designate people to handle health care and financial matters upon incapacity and death without a conservatorship or probate.
  2. Build in flexibility for tax purposes. Many plans split into A-B subtrusts when the first spouse dies even though the current portable estate tax exemption of $10 million per couple doesn’t necessitate it. Flexibility can be built into the plan instead to create subtrusts after the death of a spouse only if necessary.
  3. Consider an irrevocable C (QTIP) subtrust for control purposes if you and your spouse have children from different marriages and you want to protect your children’s interests.
  4. Selecting appropriate fiduciaries is among the most important decisions your parents will make and will be explored in an upcoming column.
  5. Determination of incapacity.  Your parents should decide whether two licensed physicians or their attending physician will determine their incapacity, the trigger for a fiduciary to step in.
  6. Plan for the family business with a buy-sell agreement or by equalizing assets between children who will be taking over the business and those who will not.
  7. Keep the family vacation home in the family for generations by creating a vacation home limited liability company.
  8. Protect a child’s inheritance from creditors, predators, and divorce by leaving it to the child in a lifetime trust.
  9. Designate recipients of important personal effects in the estate planning documents in order to avoid conflict.
  10. Seek professional advice.  Do-it-yourself planning, such as adding children to title on real property can have unintended consequences, such as losing the full step up in cost basis they would have received if they had inherited the property at death.

Starting the discussion is the most difficult step, and a child must avoid the appearance of undue influence. If your parents already have an estate plan, suggest they have an estate planning attorney review it. Many attorneys review plans and make recommendations at no charge.  Otherwise, start by discussing end-of-life health care decisions.  This dialogue often leads to more comprehensive planning.

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