• The Estate Planning Pyramid

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    Kathleen Fowler Estate Planning Pyramid
    Kathleen Fowler, Esq.
    The Law Offices of Kathleen Fowler, LLC, with offices in Dennis on Cape Cod, and in Wellesley, Massachusetts, and a satellite office in Venice, Florida, provide sound legal advice, caring support and dedicated representation in a broad range of legal matters that are important to protecting the interests of individuals, families and businesses now and in the future.
    Kathleen Fowler, Esq.

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    By Kathleen Folwer, Esq and Debra Coccoro, Esq.

    At our offices, we use this illustrated pyramid to graphically communicate the various levels of estate planning that a family needs based on differing circumstances and life stages. It’s never too early to take action to protect your legacy.

    Level One is the foundation. Everyone needs the documents here regardless of their estate tax exposure or long-term care needs. They include: a durable power of attorney, healthcare proxy, will and revocable trust. These documents assure that you avoid living probate and at-death probate. In the first case, you name someone to act for you if you become disabled, thus avoiding the need to file a petition for guardianship or conservatorship while you are living. In the second case, upon your death, your assets titled in the name of your trust pass to your beneficiaries without the need to file costly and time-consuming probate. Level one also minimizes estate-tax consequences for spouses. Each spouse executes a revocable trust that shelters assets of the first deceased spouse from estate taxes. By creating and funding these trusts, both spouses preserve assets for the beneficiaries.

    Level Two includes documents needed when there still is estate-tax liability and/ or long-term care costs that may leave a healthy spouse with little support. Key to this level is the Irrevocable Trust or IRT. When estate-tax savings is your objective, the first asset that is considered a gift to the IRT is life insurance. Its bequeath can eliminate estate taxes, and the death benefit is income-tax free. Other assets that may be transferred to an IRT should be analyzed to determine what capital-gain income tax is created by the gift when the asset is sold. When long-term care planning is your objective, an IRT can shelter family assets from being spent down, protecting the spouse of a nursing-home resident and other family members. In both cases, you are required to implement these documents years before they take effect; so planning ahead is critical. Making gifts annually truly reduces your taxable estate.

    Level Three covers situations where gifts do not adequately reduce estate taxes or will not move sufficient assets from the estate of a nursing home resident to protect his or her heirs. It also requires an IRT. It is critcal to understand that gifts made to an IRT in excess of an annual exclusion requires a federal gift-tax return. No tax will be due, however, as long as the gift is less than the federal estate-tax excusion, which in 2014 is equal to $5.34 million.

    Level Four, the top of the pyramid, covers charitable planning. At death, a charitable bequest is excluded from estate taxes. The use of a charitable remainder trust or charitable lead trust gives additional benefits to your family and carries out the charitable intentions of the donor. You can name your charity as the ultimate receipient of the value remaining in your charitable remainder trust, or CRT, upon your death. At the same time, the trust enhances income-tax deductions, helps avoid capital gains taxes and creates an income stream while you are alive. A charitable lead trust, or CLT, names your charities as immediate beneficiaries of a stream of payments for a stated period of time. At the end of this time, whatever value remains in teh trust reverts to the donor’s beneficiaries for a discounted estate-tax value. For both CRT’s and CLT’s, additional benefits go to your family in addition to your charitable mission. The pyramid is a visually powerful tool to help you execute your estate plan, beginning early in life and extending through every life stage. The key is to begin at the foundation to make sure your plan is strong and sustainable. To learn more about each level of the foundation and their documents, please contact our Estate Planning Resource Center at Kathleen Fowler Law offices. We are located on Cape Cod, Wellesley and Naples, Florida. Please visit us at www.kfolwerlaw.com.

    May 12, 2014