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Kevin B. Spaeth is a partner with the law firm Rice, Spaeth, Summers & Heisserer, L.C. Mr. Spaeth is licensed to practice law in Missouri and Kansas and specializes his practice in estate planning, business transactions and health law. He graduated from Southeast Missouri State University in 1978.
Q) What is the most critical piece of advice you give to your clients regarding estate planning?
 A) As the old Nike tag line says, just do it! Most estate planning is for naught because of procrastination. Tomorrow always comes and your spouse and your heirs will be the better for your planning now.
Q) In your experience, what are the top three most common mistakes individuals make in planning their estate?
A) First: Trying to predict the future. People tend to plan too far into the future. When you are in your forties you cannot possibly imagine what your family’s needs will be when you are in your sixties, so don’t try. Whatever you do plan for will most likely be wrong. The best estate plan is the one that does what you want it to do today. The future will be dealt with in the future with amended documents and perhaps different instruments. You simply cannot create an estate plan that meets your needs for all stages of life today, so it’s best not to try. But you can take care of today, and that is what you should do.
Second: Not thinking through their trustees carefully enough. I remind my clients that the root of the word “trustees” is “trust.” You can buy investment talent, legal talent and asset management talent but you can’t buy trust, common sense or honesty. So many clients will try to find a trustee who has all the professional skills needed, but this is not realistic. Instead, you should choose a person with common sense who knows when he or she is in over his or her head and will consult the experts when needed. You should choose someone who shares your life vision and who will see to it that your resources are used in the manner the trust dictates. The trust is a broad-stroke document; your trustee fills in the details.
Third: Not reading their documents. What a person wishes and what I actually write down can sometimes be different due to simple misunderstandings. But until you carefully read what I have written, we both might be on a dangerous road. I know we write like lawyers, often times too much so. Sometimes it cannot be helped, which is why your lawyer is there to explain the words he or she has written. However, you do not know what question to ask until you have read the trust. Lawyers will provide you with a draft; use it, read it, mark things you do not understand and pen notes in the margin. When in doubt, ask questions!
Q) What is the difference between a will and a living trust? When do you recommend one over the other?
A) A will covers assets which are solely in your name and must be probated. A trust covers only those assets that are transferred into trust and does not have to be probated. For the most part I use wills only as a backup to trusts and non-probate transfers. I recommend non-probate transfers (pay on death, transfer on death and beneficiary deeds) to clients with simple needs. The will just backs up those transfers. If a client’s needs surpass what can be accomplished with non-probate transfers, then I recommend a trust. All complex family and tax planning should be done through a trust.
Q) What types of property pass to beneficiaries outside of a will or trust?
A) Jointly-titled assets, which are those owned by a husband and wife or titled as joint tenants with rights of survivorship, pass to the survivor. Assets that have a beneficiary designation, such as life insurance and retirement accounts, are distributed to the designated beneficiary. Also, the non-probate transfers referenced in the previous answer pass to beneficiaries outside of a will or trust.
Q) Real estate often makes up the largest part of a person’s estate. What are some specific concerns relating to planning with real estate?
A) Often the biggest concern is getting rid of a family home by children who do not need it. It might not be a good time to sell real estate and create an artificially low price. Investment real estate can be handled through investment limited liability companies, so it can be liquidated in an orderly fashion to preserve estate value or provide a vehicle for the children to achieve an income out of the parent’s rental properties. Farmland is also a problem because most of the family value is tied up in real estate. Often times, one child has done more actual farming than the others, yet the other kids want their share although there is not enough money to balance it out. This is where using the team approach to estate planning is vital. Through life insurance, farming companies and limited partnerships, a lot of these problems can be dealt with, but only if you plan now and you gather a team together to show you your options.
Q) The estate tax laws changed significantly on Jan. 1, 2010. What is the current status of the estate tax?
A) As of Jan. 1, 2010, there is no estate tax. Before you celebrate, understand that this repeal of the tax is repealed itself automatically on Dec. 31, 2010, unless Congress acts to make the first repeal permanent. However, this likely is not going to happen. In fact, there is a good chance Congress is going to do nothing and let the law expire on its own term on Dec. 31, 2010. Up until this point, most educated guesses were that Congress would reinstate the law to Jan. 1, 2010, and the estate tax exemption would be reset to $3.5 million per person (the “Credit Shelter”). It now appears that Congress is going to let the current law expire and allow the credit shelter be reset to $1 million per person. This means that those people passing away this year will pay no estate tax, but consequently their heirs will lose the step-up-in basis, and some new complicated rules for modified carryover basis will be applied that will make up a lot of the estate tax in capital gains tax that those same heirs and, potentially, spouses will have to pay. The point I wish to make is this: if you think you’re done planning your estate, you’re not. If you have not done any planning to this point, then you better get busy! If Congress allows this law to expire, the estate tax will be back, the credit shelter will be lowered and the highest marginal tax rate will be 55%. Planning will be very crucial if you are going to avoid paying any more tax than is required.
Q) Are there advantages to considering charitable giving in my estate plans? What is the simplest way to do this?
A) Absolutely. There are some wonderful ideas out there for the creative use of life insurance and wealth replacement trusts that allow you to benefit your favorite charities. The simplest way to do this is to use your favorite charity as a contingent beneficiary to your trust or will. That is, if there are no heirs that survive you, the estate instead goes to a charity you select. You can also include a charity in the residuary of your estate by giving the charity a percentage of it. This is very easily done, and your lawyer can show you how to do it. This is where the team approach again becomes crucial. If you believe, as I do, that tithing should continue at death (10% of your estate to charity), then the way to achieve this is through the inclusion of the development officer at the charity of your choice in the discussion of your options. If you have been so blessed as to have put together an estate that will generate an estate tax, a good planner can show you ways to take a big bite out of that tax, benefit your charities and put more money in your beneficiary’s pocket: a truly win/win approach.
Q) What are some possibilities for using real estate for my charitable giving, either during life or through an estate plan?
Real estate is perhaps one of the most versatile assets a person can use to provide themselves a lifetime income, a current tax deduction and benefit a charity. Through careful planning you can reduce or eliminate the three main taxes we deal with: estate, capital gains and income, while at the same time benefiting you, your heirs and your charity. These ideas range from quite simple and basic all the way to complex wealth replacement trusts and charitable remainder/lead trusts. The plan that works best for you is one that gives you peace of mind and allows you a good night’s sleep. In the end, that is what estate planning should achieve: peace of mind, so you know your family and your principals are well served.
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