By: Kyle C. McInnis, J.D., LL.M. Taxation
Cook, Yancey, King and Galloway, APLC

For most people, estate planning is often a task endlessly deferred. It is something that you will get around to later and later seems never to arrive. Estate planning, especially at the basic level, is not a task to fear or keep putting off. Everyone, regardless of wealth, needs the basic estate planning documents and they need them today, rather than tomorrow.

Basic estate planning usually involves the drafting of a last will and testament, together with a medical power of attorney and a living will. A last will and testament directs where your assets go when you die. If you should die without a will, Louisiana law will control where your assets end up. Most people would rather control the ultimate disposition of their estate through a will of their own creation, rather than have Louisiana law control. There are other reasons to have a will, though. A will allows you to name your executor, who will control your probate process. It also allows you to grant this executor broad powers to administer your property during the probate process with minimal court supervision, thereby reducing the costs of probate. A will also allows you to make a bequests to a church, leave money to people outside your family, or designate who should take care of your minor children after you pass away.

In addition to a will, everyone needs a medical power of attorney and a living will. A medical power of attorney allows a person of your choosing to make medical decisions on your behalf when you cannot. If, for example, you are incapacitated and unable to make your own medical decisions because of a car accident, a medical power of attorney will allow a person you designate to make those decisions for you. This medical power of attorney is different from a living will. A living will expresses your desires if you should be in a terminal and irreversible condition. The living will expresses your wishes regarding how you will die, such as if you wish for heroic measures to be taken to preserve your life. A medical power of attorney would govern when you are not dying, but merely cannot make your own medical decisions.

While these are the estate planning basics, many people need to consider additional planning to avoid or reduce the impact of the federal estate tax. The federal estate tax is a tax imposed on your assets at death. Most people avoid the estate tax through a lifetime exemption that allows transfers of up to two million dollars before any estate taxes are owed. For those with assets in excess of that amount, however, the estate tax claims a whopping 45% of that excess.

There are numerous strategies to avoid the punitive estate tax. From family limited partnerships to intentionally defective grantor trusts to grantor retained annuity trusts, advisors have created numerous tax saving strategies to avoid or eliminate estate taxes. Each strategy has its risks and rewards and each should be carefully considered.

Whatever strategies you pick, it is important to start the planning process early. One never knows what fate has in store and it is important to be prepared. Estate tax liability can be better avoided if the strategies designed to thwart it are implemented early. Once your plan is in place, it is wise to review it periodically, as your wishes and situation may change from year to year.