Centara Connection

The Cost of Waiting to Plan

Ryan Coulson, Estate Planning Attorney

More often than not, a client does not approach Centara Legal Group for estate planning advice until well beyond retirement. Typically, it is the passing of a close friend or family member that motivates them to inquire about their own estate matters. While we welcome clients who come in at any stage of life, as any advice is better than none, we encourage clients to plan sooner rather than later.

Many of our clients have estate plans that were drawn up prior to enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Although these plans are usually drafted to apply the estate tax law in place at the time of the client’s passing, the terms do not always permit a structure that will best utilize the current laws or planning techniques.

Additionally, clients are often unaware of the size of their taxable estate. It is not uncommon for a client to estimate that he or she is worth approximately $1,500,000, and thus far below the estate tax threshold, only for us to later calculate his or her taxable estate to be worth closer to $3,000,000. This difference accounts for approximately $500,000 in estate taxes! These two common situations illustrate the importance of having your estate plan reviewed and net worth properly monitored.

When a client has an estate tax liability, advanced techniques that utilize the Internal Revenue Code (IRC) are available. The IRC includes all assets “owned” by an individual at the time of their death in their taxable estate. The ownership principle is not so concerned with title, but the extent to which an individual has control over the disposition of that asset. Thus, the objective of advanced planning techniques is to remove the control from the client for purposes of satisfying the IRC while simultaneously maintaining access to that asset.

There are many methods we employ in order to remove assets from the client’s taxable estate. However, the Code specifically prevents certain transfers if they occur too closely to a client’s passing. These transfers can be “clawed back” into the client’s taxable estate and unravel any planning that was done. As a result, as the client ages the risk increases and the number of techniques available to remove assets from the taxable estate drastically decreases.

Further, estate planners often use life insurance as a means of providing liquidity to pay the estate tax as opposed to forcing the heirs to sell the assets. The life insurance proceeds may be kept out of the client’s taxable estate through an Irrevocable Life Insurance Trust (ILIT) in an extremely effective and efficient manner, but will not be available to uninsurable clients.

As you can see, we as estate planners have many strategies available to us to deploy. However, the number of techniques at our disposal drastically decrease when there is little time to develop a plan. Thus, no matter your age or current net worth, we encourage you and your family to contact Centara Legal Group to get a plan in place while time is still on your side.

Centara Legal Group, APC
8880 Rio San Diego Drive, Suite 450
San Diego, CA 92108
(619) 400-1900
www.centaralegal.com
info@centaralegal.com