¡OJO! - A Legal Warning!

My neighbor has been a bit erratic.  I think it has to do with his brain.  He has occasional headaches, but his biggest problems are with his behavior.  He just doesn’t seem himself.

I believe I’ll go over and give him my legal opinion that he needs brain surgery.  Seems like a great idea...right?

Ojo, Spanish for “eye,” is used in some South American countries as a warning for someone to be careful.  As attorneys we need to be careful about the advice we give.

Many pundits and less informed practitioners have opined in the media lately that living trusts are no longer necessary in effective estate planning.  Their reasoning is that with a current federal estate tax exemption of $5,250,000 per person, trusts are not needed to avoid estate taxes.  Our firm has had many clients and prospects call or visit us with questions about such articles.

We are concerned about the number of people who listen to such advice and decide either not to create a trust, or to revoke a trust they have already created.  Poor advice not only is annoying, but it hurts the innocent who might listen.  ¡Ojo!

Those who decry the use of living trusts are seeing only a small portion of the picture.  Effective estate planning includes efforts to reduce estate taxes.  However, that is only one of several areas of concern.  If estate taxes were never again a possibility, a great percentage of the population would still benefit from an estate plan built around a living trust.

First, millions of single persons have created trusts for multiple valid reasons.  The federal estate tax exemption has nothing to do with a trust for a single person, and a higher exemption does not remove the considerations for a trust.

For married couples, a trust can double (and increase even more) the estate tax exemption.  Those couples who created trusts solely to avoid estate taxes and who have estates of under $5,250,000, would see no need for a trust under the current law.  However, of the thousands of clients of our firm, we know of none who thought only of avoiding estate taxes when creating trusts.

Properly created trusts offer, among others, the following additional protections, some of which might be of greater interest and concern to clients than any estate tax consideration.

Protection against creditors of a surviving spouse and other beneficiaries.

Protection against the required spend-down of virtually all assets before a surviving spouse and other beneficiaries can qualify for Medicaid.

Protection of a special needs beneficiary against loss of government entitlements.

Protection of a surviving spouse and other beneficiaries against loss of the estate to an ex-spouse (or to a current spouse, for that matter).

Elimination of capital gains taxes for a surviving spouse on the death of the first spouse, and for beneficiaries after the death of the surviving spouse.

Elimination, or minimization, of state estate taxes, which can be assessed at a much lower exemption than federal estate taxes.

Protection of assets from dissipation by beneficiaries with bad habits, spendthrift tendencies, substance abuse problems, or predators.

Protection of assets for the benefit of beneficiaries who are too young or inexperienced to handle their affairs at the time assets are to be distributed.

Avoidance of expensive and time-consuming conservatorship and guardianship proceedings for incapacitated beneficiaries.

Avoidance of the expenses, time delays and publicity of probate proceedings.

Not all trusts contain the above protections, but they are available from practitioners who have greater experience in creating and administering trusts.

None of the protections listed immediately above has anything to do with the new federal estate tax exemption.  Additionally, the federal estate tax exemption could be reduced, causing problems for those who revoke or forego trusts based solely upon estate tax considerations.

What a short-sighted matter it is to advise someone against acquiring, or maintaining, the tremendous protections listed above, based wholly upon a very narrow and incomplete reading of current law and circumstances.

Our experience has been that most people who give advice to others mean well.  My advice to my neighbor about brain surgery comes out of sincere feelings of friendship and concern.  But unless I’m an expert about brain surgery, or about relevant medical matters, or about the factors affecting his behavior, I should refrain from making authoritative remarks about his health care.

As should all of us in matters outside our expertise.  ¡Ojo!

Contributed by MH Mesa Estate Planning Attorney and Partner Theron M Hall, Jr

What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down.  The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits.  Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.