Saving Money By Avoiding An Expensive Estate Plan - Part I

Wednesday, September 14, 2022

    One of the most profitable areas for lawyers involves trying to fix problems that arise after someone has died or become incompetent, when the person has “saved” money by using an inadequate estate or incapacity plan, or has no estate or incapacity plan in place at all.

    This article will focus on the just some of estate planning aspects of such cases.

    Later articles will touch on other estate planning issues, and on incapacity planning issues for folks who become incompetent but who do not have appropriate incapacity plans in place.

    People who die with over a million dollars in assets, including their home and any life insurance they have, will pay about 10 percent of the amount over one million dollars to the State of Oregon in Oregon estate taxes.

    If a couple has a $400,000 house, $200,000 in life insurance, and $400,000 in investments, or an IRA, or a 401k, they will be at a million dollars.  A taxable estate of 1.3 million dollars is not uncommon for a middle class couple.  Without tax planning, this couple will pay an estate tax of about $30,000 when the second spouse dies.

    Some people try to avoid this by gifting during life.

    If couple does this, and then either spouse needs Medicaid in the next five years after making the gift, there will be a period of Medicaid ineligibility.

    Given the high cost of both in home care, and nursing home care, it is entirely possible that a couple with a million dollars in assets could need Medicaid for one of them within a five year period.

    In contrast to the $30,000 that the couple will NOT need to pay in estate taxes when the second one dies if there is no planning, a comprehensive estate and incapacity plan that would avoid these estate taxes will probably cost between $2,000 and $8,000, depending on how complex the plan is, and on how many changes and the like are involved as the plan is put together.  This fee is somewhere between 1.5/1000ths and 6.1/1,000ths of the wealth of a couple with assets of 1.3 million dollars.