Is Estate Planning Dead?

For years traditional estate planning was oriented toward estate tax avoidance and controlling assets for young or inexperienced heirs. Estate tax avoidance is no longer a worry for most Connecticut families because the exemption is $5.1 million on January 1, 2020, and the federal exemption is $11.2 million. That means only a tiny percentage of Connecticut residents will ever pay inheritance tax. But taxes are not the only reason to do estate planning.

For a young family, with minor children, or even children well into their twenties or older, it makes great sense to create a revocable trust to receive assets if both parents should die when the children are still too young or inexperienced to handle money. That revocable trust can have a trusted family member, or a professional, invest and use the assets for the children until they get older and wiser.

For years my office served as Trustee for a “child” who was almost 50 when his parents died. When he was in his middle 60’s he asked for the rest of the trust money because he said he was getting married. When questioned about the hope for marriage he admitted that he had never met the woman, but only communicated online. Needless to say the funds were kept safe and no more was heard about the marriage.

There are other reasons for estate planning, and that is asset protection for spouses who may need nursing home or in home care. If one spouse qualifies for Medicaid to pay for that care, and the healthy spouse has assets in his or her name, the state will make a claim against those assets if the healthy spouse dies first. Careful estate planning can save almost all of their assets if a special will is done with a trust inside it. If assets go into that trust, they are essentially protected, even if there is a large amount owing to the state. It is not always possible to protect

100% of the assets, because Connecticut law says a surviving spouse is entitled to get the income from one third of the assets, but not the assets themselves. With careful planning, very little of the assets will have to be repaid to the state.

For people with assets that are below the Connecticut $5.1 million tax exemption, creating trusts to protect responsible adult children from a potential divorce or other legal liability may be a wise option. For example, a trust can be set up to receive money after the parents are gone, with discretion to pay or not pay funds among several adult children. That way the funds are not subject to creditors and are not counted against any one of those adult children if they or their spouses need long term care. And they can avoid probate.

So estate planning for most people may not be needed for inheritance taxes, but, a power of attorney is absolutely critical to handle assets if someone becomes incapable and assets need to be switched to protect them. Then depending on the family circumstances, trusts and wills may provide critical protection to deal with the costs of long term care. Estate planning is not dead.