Legacy Course Review: Article #5
Legal Tools & Tips
Source: Apartment News Magazine
By Timothy Gorman
Real Estate Broker/CPA/Entrepreneur
Welcome to the fourth edition of my series, where we delve into the ongoing learnings from our Estate & Legacy Planning workshops. This series is designed to be interactive and practical, offering big-picture insights while ensuring participants leave with a solid framework for their estate plans and actionable steps for themselves and their advisors.
In this article, we’ll focus on Week 4: Legal Overview. This week marked the beginning of the more technical aspects of estate planning, particularly concerning legal issues, strategies, and alternatives. We covered wealth conservation strategies, trusts, pour-over will, and essential documents like the Health Care Directive and Durable Power of Attorney. Additionally, we touched on important paperwork needed.
Daniel Sullivan, Senior Associate Attorney with Lagerlof, LLP, walked us through the fundamental mechanics of key aspects of estate planning. He answered questions throughout the session, and we had an extended Q&A at the end. Daniel has agreed to return during Week 7 to discuss the tax implications of various strategies in greater detail.
Currently, the Federal Estate/Gift Tax Exemption amount is $13,610,000 per person. Effective January 1, 2026, this amount will reduce to roughly $5,000,000, inflation-adjusted to about $6,000,000. You can lock in that exemption now using certain tools, but there are risks and potential consequences you might not appreciate. You need to determine what is most valuable to you—whether it’s a step-up in basis, avoiding property tax reassessment, maintaining control, or addressing a host of other issues. The class aimed to highlight this delicate balancing act.
To begin, Daniel discussed the three options for estate planning: doing nothing, creating a will, or establishing a trust. However, the truth is that to effectively avoid probate (the goal of every estate plan), you will need both a trust and a will. The will is relatively straightforward; it typically involves selecting a “pour-over” will, which states that anything left out of your trust gets transferred to it. While there are a few more basic elements involved, this is the essential gift. The more complicated part is the trust itself.
The type of trust you need (or whether you need multiple trusts) is unique to each individual. Trusts can be revocable, allowing you to make updates and changes while you’re alive, or irrevocable, meaning no changes can be made after they’re established. Your goals will determine which trust is the best fit for you. We briefly discussed many different options, including Generation-Skipping Trusts (GST), which allow you to benefit grandchildren while avoiding double taxation, and Spousal Lifetime Access Trusts (SLATs), among others, each with its own acronym, purpose, pros, and cons.
Other types of trusts include Charitable Trusts, which facilitate donations to charity while providing tax benefits; Special Needs Trusts, which ensure disabled beneficiaries receive support without affecting their government benefits; and Irrevocable Life Insurance Trusts, designed to exclude life insurance proceeds from estate taxes. Each of these trusts will be covered in separate classes, allowing for a deeper exploration of their pros and cons.
The good news is you don’t need to obtain a legal degree to find the right solution. The key is to understand your own unique situation and effectively communicate with your attorney, who can guide you to the right tools. It’s crucial to do as much prep work as possible yourself so you’re not paying them to do your homework. The more thoroughly you prepare, the better positioned you’ll be to find the right solutions without wasting time or money.
Daniel also took a deeper dive into the most common form of trust: the Revocable or Living Trust. While some items, like IRAs and 401(k)s, are best left out for tax and transfer reasons, most other assets should be named in the trust. This is how you “fund” the trust—by placing the actual name of the property or asset in the name of the trust.
During the lifetime of the grantors (the individuals who set up the trust), nothing significant happens. You are free to make changes, and there is no adverse effect on taxes or reporting. After the first spouse passes, the trust can separate into a survivor’s trust that remains revocable and is included in the survivor’s gross estate, allowing for amendments. The other two irrevocable trusts created at the time of passing—typically divided equally—are the Bypass Trust (not included in the survivor’s gross estate and does not receive a step-up in basis at the survivor’s death) and the Marital Trust (included in the survivor’s gross estate and does receive a step-up in basis). Each option has its pros and cons, but ultimately, you and your spouse can decide what action is best for your family.
Next, we discussed the Health Care Directive and Durable Power of Attorney. These documents allow you to designate individuals to make medical or financial decisions in case of your incapacity. This part was a significant “a-ha” moment for me personally. Your attorney may not stress the importance of communicating your wishes to your heirs, especially regarding end-of-life decisions. Anyone who has experienced this situation can attest to how emotional and challenging it can be. Just because a box is checked on a little yellow form doesn’t guarantee that your heirs will fully understand your intentions! Take the time to discuss your wishes with them—video recordings are a great way to ensure everyone is on the same page. Doing your family a favor by addressing this part of your estate planning process is essential.
To wrap up, we spent a good amount of time addressing specific questions. I’m always amazed at how one person’s question can clarify and shed light on others’ concerns in the class. While each situation may seem unique, many of us face similar challenges. It is both comforting and inspiring to navigate this process in a group setting.
In the next article, we’ll cover Week 5: Charitable Giving. I can already tell you that learning about these options has blown my mind. I’ve always been hesitant to tackle these complex topics, but the truth is they are relatively straightforward and can provide favorable returns and tax benefits. Even if you’re not particularly charitably inclined, exploring these options is well worth your time!