Not Having an Estate Plan

It’s a fact -– most people do not have estate plans. They have living trusts and wills — but these are not estate plans. Unfortunately, most people believe that their estate planning process is completed merely with a living trust and a will but nothing could be farther from the truth for wealthy individuals. A living trust helps rid your estate of probate but it doesn’t solve your estate planning needs. Likewise, a will may help in expressing your post-mortem desires but it is not an estate plan.

This is a crucial mistake. For example, John Wayne didn’t have an estate plan, he had a will. Yet 25 years after his death, his estate is not yet settled. Again, trusts and wills are not estate plans. Some people recognize this mistake and take the necessary step of going to an attorney and having an estate plan developed. However, it is only too common that they then fail to actually implement the plans, such as putting their assets in a trust or follow-up on other aspects of the plan.

The solution is straightforward: Find a competent professional, get an estate plan and implement it.

Not Maintaining an Estate Plan

People may have completed estate plans when real estate values were less, when stock or other investment portfolios were dramatically different, or when family members were different. For example, divorced in-laws may still be in the estate plan -– is that what you really desire?
It is important to recognize that changes in the value of your estate need to be regularly evaluated. Many parents want to assure equity in division of assets but unknowingly set the stage for an inequitable division of assets because of the directives of the estate plan. Your plan needs to be reviewed regularly for such updates.

Also, the laws may have changed in many areas of the tax code. Estate plans need to be reviewed for such potential ramifications. If anyone thinks that estate taxes will be eliminated, it is foolish planning. There is a “sunset provision” in the tax code that is scheduled to disappear after 2010. It will be tax suicide for the government to not have some type of implementation of estate taxes. As individuals continue to accumulate wealth, rest assured that the government will continue to find ways to tap into it.

On another note, like anything else, change happens – we get older, we may have different values or philosophies, and we might decide to distribute our estate differently than we felt at the time when our estate plan was written. The solution is to put on your calendar to evaluate your estate plan once a year. Do this on a regular basis and you may surprised at how frequently major or minor aspects of your estate plan need to be updated.

Not Involving Your Adult Children in Your Estate Plan

Failing to involve your adult children in your estate plans is a huge mistake because ultimately it is your children who will be writing the check to Uncle Sam. Yet since people don’t like to talk about their mortality, or want to avoid sticky subjects such as inequitable division of assets, they avoid the discussion totally with their heirs.

It is very common for parents to pass away and then the children scramble around to determine what are the estate’s assets, what is their value and what to do with them. For example, children may find something in a safe deposit box and not know what to with it. Or they find a trust deed for a piece of raw land that no one seems to know about. This happens all the time and it is a big mistake.

The solution is to communicate with your kids. Tell your children what you have done and how to implement your estate plan. Discuss the value of your assets. Your children will find out eventually so why not take the time now to tell them something that will help them, is of potentially great value, and you can express how you want it handled.

Not Understanding the Asset Mix in an Estate

It is common for someone to think “I’ve got plenty of money in my estate, let the kids handle the estate taxes.” This is a mistake because people often do not have the amount of liquid assets that might be necessary to pay estate taxes in the best manner.

When we die, the government requires that within nine months of the second death the estate must be settled. In many cases, estate taxes must be paid. You are then asking your children/heirs to write a check to the government. The mistake that people make is that they have assets that are very illiquid, which cannot easily be converted to cash in a short period of time. I call this scenario “liquidity confusion” because people are confused about the liquidity of the assets in their estate.

Other examples include businesses, private placements, private stock investments, personal loans, which are all highly illiquid assets that add to net worth but are difficult to convert to cash without a potentially significant loss in value of the asset and/or difficulties in converting the asset to cash within the required nine month time frame. Do you want your kids to be forced to sell your business in order to pay the estate tax?
It is very important to understand how you can achieve liquidity in enough of your estate in order to pay any necessary taxes. The solution is to understand the assets in your estate and what portion is truly liquid.

Estate Tax is a Voluntary -– We Choose to Pay or Not

Too many people believe that the estate tax is inevitable. However, the truth is that it is truly a voluntary tax. An individual can choose to set up different estate planning techniques to limit estate tax liability – or he/she can fail to do so and thereby “donate” a sizable portion of a life’s work to the government.

It is truly incredible what a well-designed estate plan can accomplish in terms of estate tax minimization. For example, Joe Kennedy had an estate in excess of $600mm. Ordinarily that would equate to around $300 million in estate tax liability. However, his heirs paid less than $200,000 because he chose to deal with the problem of estate tax.

The solution is to employ the help of estate planners. Numerous estate planning scenarios can be developed to limit the estate tax. Each situation is different, so seek professional advice.

A life settlement is a financial transaction in which a life insurance policy owner sells an unwanted or unneeded policy to in institutional investor for a lump sum dollar amount. The institution becomes the new owner and beneficiary of the policy and is responsible for all subsequent premium payments. It gives you cash to use however you like: pursue a dream, travel, help a grandchild with college tuition, etc.

While life settlements have become an integrated part of estate planning for people over 65, recently Early Life Settlements have now become available for people who are 56-70 years old. The sale of an existing term life insurance policy transforms what is often seen as a liability or a necessary evil into a resource that can and should be managed as part of an overall financial plan. This new avenue will help you see greater value from your expiring term life insurance policy and begin to realize your goals sooner.

It’s estimated that approximately 73 million Americans currently have life insurance policies, yet many people don’t realize how powerful an asset your policy can be in the battle for maximum wealth appreciation.

Instead of letting your term life policy expire without paying a benefit, you can use an Early Life Settlement to your advantage. Here are some reasons to leverage this new opportunity:

• Turn an expiring asset into liquidity for your estate
• Take advantage of other investment options
• If premium payments are no longer affordable
• The status of your estate has changed, and life insurance is no longer needed to pay estate taxes
• An individual prefers to discontinue a current policy in favor of survivorship coverage
• To realize an immediate gain from your future asset

Many savvy investors now see the true value of their term life insurance policies. Given the current decline in traditional assets, like stocks and bonds, now could be the best time ever to realize the power and flexibility that has been locked away in your term life policy.

Your power to make this kind of agreement is based on the premise that you control the patent (or other legal rights) to your invention. Think of a license as giving a company permission to use your patent. As owner of the invention, you will always be the “licensor,” and the party receiving the license for your invention is called the “licensee.” What makes a license appealing—assuming it is the “right” license—is that the licensee assumes all of the business risks, from manufacturing to marketing to stopping those who infringe on the product’s patents.

The licensing inventor sits by the mail- box and waits for the quarterly royalty checks. Unlike a license, an assignment is a permanent transfer of ownership rights. When you assign your invention, you are the assignor and whoever purchases the rights is the assignee. An assignment is like the sale of a house, after which the seller no longer has any rights over the property. As the assignor, you may receive a lump sum payment or periodic royalty payments. Even though they have different legal meanings, the terms assignment and license are sometimes used interchangeably.

Indeed, these two types of agreements sometimes seem to have the exact same effect. This is true in the case of an unlimited exclusive license, in which a licensee obtains the sole right to market the invention for an unlimited period of time. For this reason, you or your attorney must examine the specific conditions and obligations of each agreement rather than simply to rely on terms such as assignment and license.

You should also know the odds before you proceed into licensing. A study by Ed Zimmer and Ron Westrum revealed that about 13 percent of inventors who attempted to license their invention were successful. That’s about one in eight. No doubt the other seven inventors were convinced that their invention would make money. This data is based on the persons who responded, which probably skews the percentage positively. Those who were unsuccessful were probably less likely to respond at all.