John E. Richardson, Jr.
CPA - CFP
Certified Financial Planner
Senior Financial Advisor
for Strongtower Financial

Last week, we began our discussion of the importance of a properly prepared estate plan. We will now resume our discussion with the AB trust. The AB trust literally doubles the estate tax exemption that a couple would have obtained from a simple probate avoidance trust. Let's take a couple who has a total net worth of $4 million. At the death of the first spouse, the A trust is funded with the maximum estate tax exemption, currently $2 million. The remainder goes into the B trust which passes estate tax free to the surviving spouse. Upon the death of the second spouse, they also get their own estate tax exemption of $2 million. This allows the couple to pass a total of $4 million to their heir's estate tax free. If you only have a simple probate avoidance trust, upon the death of the first spouse, all of the assets will pass to the surviving spouse free of estate tax. However, upon the death of the second spouse, they can only protect $2 million from estate tax. The remaining $2 million will be subject to estate tax totaling $900,000. So a properly prepared estate plan can be one of the best investments anyone can make!

A Will is also a necessary part of any estate plan. It expresses your wishes and directs the executor of your estate to distribute your assets that are not held by your Revocable Living Trust. Another extremely important aspect of the Will is that it designates who will raise minor children upon your death. If you have grandchildren, I would highly encourage you to make certain your children have their estate plan in order for this reason alone. Without a Will, the state of California decides who would raise your grandchildren should something tragically happen to their parents.

Does everyone remember Terri Schiavo? This case rose all the way to the Supreme Court. It tore a family apart because she did not have an Advanced Health Care Directive. This document is a vital part of every estate plan. It gives someone you trust the authority to make decisions concerning your health care should you become incapacitated and can't make them for yourself. Most people have specific wishes in this area, particularly when it comes to end of life decisions. But if you don't have this necessary document in place, a physician is bound to sustain your life as long as the technology allows them to do so.

Similarly, a Durable Power of Attorney gives another person the legal authority to conduct financial transactions on your behalf. So again if you become incapacitated due to Alzheimer's disease, a stroke, etc., it allows someone you trust to make decisions with respect to your finances.

For the past two weeks, we have discussed the importance of a properly prepared estate plan. It is an essential component of your overall financial plan. I urge you as I urge my clients to have their estate plan prepared by an attorney that specializes in estate planning. I have seen many individuals try to save money with "do-it-yourself" kits or internet services. There are countless horror stories of improperly prepared estate plans done in this manner. Often, the documents have not been properly completed and deemed invalid by the courts or are valid but do not accurately convey the wishes of the maker. Please don't make that mistake. Be certain you have your estate plan in order, if at the end of your life you want to have the last word.

John E. Richardson, Jr., CPA, CFP® is a Senior Financial Advisor with Strongtower Financial in Escondido. If you have any questions or comments, please contact him at (760) 705-3520 or by e-mail at
jrichardson@strongtowerfinancial.com