Don’t let the tail of the increased federal exemption wag the estate planning dog

On December 22, 2017 the President signed the TAX CUT AND JOBS ACT (The “Act”) that became effective January 1, 2018. For estate tax purposes and for estate tax planning purposes, the Act essentially doubled the federal estate, gift, and generation-skipping transfer tax exemptions through the end of 2025. This means that as of January 1, each individual has a federal exemption of $11.2 million. Married couples will enjoy a federal exemption of $22.4 million. According to the act, the estate tax laws are scheduled to revert to the pre-Act law in 2025 unless Congress acts between now and then to remove the sunset provision.

In addition to the higher lifetime exemptions, the annual amount that can be given tax free to each of an unlimited number of persons under the federal exclusion has been increased from $14,000 to $15,000 per year.

Certainly, this increase of the federal exemption amount grabbed the attention of not only the public, but also estate planning attorneys. Historically, the conventional wisdom of estate planning has had the crux of its purpose to preserve assets from taxation so that a larger amount of assets can be bequeathed to surviving spouses, children and grandchildren.

According to the U.S. Census Bureau, nearly 10,000 individuals are retiring every day.  That means that by 2020, 55.9 million people in the United States will be age 65 or older and by 2020 that number will reach 72.7 million in the U.S., according to Business New Hampshire Magazine. One of the largest transfers of wealth will reach historical highs in the next few years as the “baby boomers” attain the age of 65 or older and will need to make provisions for their surviving spouses, children, and grandchildren. As lawyers, we should encourage clients to not let the new federal exemptions obviate the need for the future planning of the transfer of their assets.

With an escalation in documented cases of dementia and Alzheimer’s disease, documents such as durable powers of attorney and advance directives play any extremely important part in the planning of a client’s future, both for their need, but also for the consideration of lessening the stresses upon their family members.

A heartbreaking example of this occurred recently when a client’s husband, a healthy 42-year-old, suffered a cerebral stroke at work. He was completely incapacitated in a “locked-in syndrome” whereby he could only communicate by blinking his eyes. After being airlifted to hospitals in Boston, his spouse was unable to effectively make decisions with regard to his medical care and insurance issues because they didn’t have durable powers of attorney or advance directives in place. The situation was only resolved by emergency hearings before a Probate Judge to obtain Guardianship/Conservatorship.

Therefore, a gentle reminder to our clients of the importance of preparing these documents for unforeseen circumstances in the future is clearly a responsible a thing to do as their lawyers. Clients should be advised that the durable general power of attorney allows them to appoint an agent to handle all of their financial affairs in the event that they are incapacitated or unable to do so. The durable general power of attorney not only allows an agent to be designated, but also allows and agent to sign the “statement by agent” acknowledging their responsibility and will be prepared to step up when needed by the principal of the durable general power of attorney.

Secondly, advance directives are equally important for clients to have executed before the need arises. The New Hampshire advance directives are essentially divided into three parts with Part 1 “durable power of attorney for health care” being the first section of the advance directive.  That allows the designated agent by the principal to make critical medical decisions when the client/principal is unable to do so. Those decisions can involve such things as life sustaining treatments, nutrition and hydration decisions and whether an agent has the authority to make these decisions over the objection of the client/principal.

Part 2 of the advance directive focuses on the “living will” portion of the directive. It works in part with the durable power of attorney for health care (Part 1); this specifically allows for terminating life sustaining treatments when there is an incurable injury, disease, illness and the client/principal is near death.

Part 3 of the advance directive regards HIPAA releases on behalf of the client/principal.  While Part 3 does not involve any decision making process, the release often allows the agents named in Part 1 and Part 2 to obtain medical records and medical information from the health care providers so that the obligations and responsibilities under Part 1 and Part 2 can be exercised in an efficient and informed manner.

As the above example with the 42-year-old suffering a stroke indicates, these documents are critically important and not necessarily designed for “end of life” situations, which most clients associate these documents with when thinking about the need for these types of estate planning documents.

With the aging population and the additional concerns of age-related medical concerns, the need for these basic life-planning and post-life estate planning documents has never been greater. As attorneys we should be prepared to have these important discussions with our clients and prospective clients so that we can also fulfill our obligations as counselors of law on behalf of our clients. Notwithstanding the advent of the internet and the ease of downloading forms, these critically important documents and decisions that fulfill their purpose, is not a “one size fits all” process.

In short, clients should understand that simply because they do not have over $11.2 million in assets that they no longer should be concerned with these family-related decision-making responsibilities. By doing so the proverbial basic estate planning dog can then appropriately wag the tax consideration tail on behalf of our clients.

This article was published in the New Hampshire Bar News, Vol. 28, No. 10 (March 21, 2018).

Photo of Brian Champion in a dark suit in a law office

Brian L. Champion

Brian L. Champion is admitted to practice in the state and federal courts of Maine, New Hampshire, Massachusetts, and the District of Columbia in Washington D.C.  He is also admitted to The First Circuit Court of Appeals and The United States Supreme Court. Trusts & Estates:  Mr. Champion believes that the caring for one’s family… Read more »