This memorandum describes certain estate planning issues and techniques that you may want to consider. We will be happy to discuss these estate planning suggestions and techniques in detail with you at your convenience.

I. Your Estate

The typical estate planning client is married with children and perhaps grandchildren. The couple normally owns a principal residence as joint tenants with rights of survivorship, perhaps subject to a mortgage. Life insurance is usually owned on the lives of one or both spouses. There are some stocks, bonds and cash held in one name or joint names. Accrued benefits in IRAs and qualified pension, profit-sharing or 401(k) plans may be significant.

II. Estate Tax Planning

In suggesting an estate plan for your estate, we may primarily focus on tax planning considerations. We recognize that you have testamentary desires other than tax planning. Those personal desires, of course, should always be integrated into the estate plan.

We suggest that you plan your estate so that there are no federal estate taxes due at the death of the first of you to die. Depending upon the size of your estates, there may be federal and New Hampshire estate taxes due at the second of your deaths. Thus, we suggest that you consider techniques to reduce the anticipated taxable estate at the second death. These techniques include creating a "Family Trust," gifts, charitable devices, life insurance trusts and other asset transfer techniques.


To implement any estate plan that minimizes taxes at the second death, the first of you to die should leave the federal estate tax exclusion amount ($2 million in 2006, 2007, and 2008, and $3.5 million in 2009) to a Family Trust with your children and surviving spouse as beneficiaries. Your estate in excess of this amount should pass to your surviving spouse either outright or in a marital trust. The surviving spouse would receive the income from any marital trust during his or her lifetime and after his or her death, the trust property would pass to your children.

To fully utilize both of your $2 million exclusion amounts, it may be desirable for each of you to have approximately $2 million of assets in your own name that can pass under your wills or revocable trusts. Depending upon how your assets are presently configured, you may want to divide some jointly held property or shift assets between you.

In addition, we may suggest establishing an irrevocable trust which would be the owner of your life insurance policies. If the trust is the original owner of the policies or if you live three years after the irrevocable assignment of existing policies to this trust, then these life insurance proceeds should not be taxable as part of your estates. Your surviving spouse and children can be beneficiaries of a life insurance trust. Use of a life insurance trust could permit you to save over fifty percent of your life insurance proceeds from being paid as taxes.

In addition, since under the above-described estate plan, your estates may be subject to taxes at the second death, you may want to consider life insurance which pays at the second of your deaths, thus providing liquidity to your estate when needed. You can also create a life insurance trust for such insurance policies, to protect those policy proceeds from tax.

We may also suggest that you consider an active gifting program to your children and other beneficiaries. A gifting program, generally using your $12,000 federal gift tax annual exclusions, can permit you to transfer some of your estate with a minimum of transfer taxes. Also, you may want to consider certain other techniques to transfer property to your children or others with a minimum of transfer taxes, as discussed below.

Finally, to effectuate any of the above estate tax planning techniques, we need to consider carefully your assets. Since certain assets pass outside of your will, the disposition of these assets must be coordinated with your estate plan. For example, it may be appropriate to review and perhaps revise beneficiary designations for insurance, IRA, employee/benefit and retirement accounts. These items generally pass by contract and do not pass under a will. The selection of the appropriate beneficiaries requires coordination with your estate plan. Also, where possible, the beneficiary designations should permit post-mortem flexibility including disclaimers and income tax planning. We can assist you in this review and in coordinating these items with your overall estate plan as appropriate.


III. Probate Avoidance: The Living Trust

We frequently recommend using a “pour-over” will together with a “living trust” as the basic estate planning documents instead of relying on a will alone. A living trust is a trust established during an individual's lifetime. A living trust may be used during life, if the trust grantor wants to put assets in the trust for management purposes. Otherwise assets will be transferred to it by the pour-over will. This trust is particularly appropriate if the individual becomes unable to manage his or her assets during life. Also a living trust may avoid certain inconveniences in administering the estate at death. Similarly, a living trust is not subject to the supervision of the probate court after the individuals death as is a testamentary trust. Finally, at death a will becomes a public document when it is filed with the probate court. In contrast, a living trust does not need to be filed with the court, so it protects the family's privacy.

IV. Selection of Guardians, Executors and Trustees

Careful consideration should be given to the selection of the guardian of any minor children, the executor of the estate, and the trustee of any trusts, whether those trusts are established under the will or by a living trust.

The “guardian of the person” of the minor child can be named in the will and the Court will consider that provision in the will as a strong guide in appointing the guardian for the child. The guardian would actually have custody of the child until the child reaches the age of majority (i.e., 18).

You also can name in the will the same or a different person to serve as the “guardian of the estate” of a minor child. This guardian would manage the child's financial assets until the child reaches 18. Alternatively, a child's inheritance can be (1) managed by a custodian under the Uniform Transfers to Minors Act or (2) held in trust under terms and conditions that you set out in the will or trust instrument. A custodianship ends when the child reaches 21. A trust continues until the time you indicate in the will or trust instrument. Guardianship, custodianship, and trust arrangements all provide asset management for the child by a competent adult or institution chosen by you.

The executor has responsibility for gathering the decedent's property, investing and managing the property in the estate, paying all of the debts and taxes, and disposing of the remaining property according to the will. Frequently, the spouse is named as the executor with a corporate institution or individual named as the successor executor if the spouse could not serve for any reason.

A trustee is responsible for making distributions to the beneficiaries of a trust and investing and managing the trust assets. The grantor of the trust (the individual who creates the trust) or the testator (the individual who creates the will) may name (1) a corporate institution or bank as the trustee; (2) one or more individuals as the trustee or co-trustees; or (3) one or more individuals and a corporate institution or a bank as the co-trustee. In addition, the grantor or testator may name combinations of different trustees or co-trustees for different trusts or for specific assets within a trust.

The following are some of the qualifications the grantor or testator should seek in selecting a trustee and executor, in considering a co-trustee or co-executor arrangement, and in providing for successor trustees or executors:

1. Continuity of Existence. The administration of the trust may extend through a second generation. Thus, the grantor or testator should be assured that the trustee named in the instrument will be in existence and prepared to serve the beneficiaries of the second generation, or at least provide for a successor trustee should the initial trustee be unable to serve.

2. Specialization and Individual Skills. The responsibilities relating to the administration of the trust or of a probate estate should be considered in selecting the trustee, including the requirement for investment expertise in the investment of funds, management expertise in the management of a closely-held business or farm, accounting expertise in bookkeeping or in the preparation of tax returns, and insurance expertise in properly insuring the trust property against risks of loss. A bank may have specialists on its staff in all of these areas; however, an individual should also either have expertise in one or more of the above-referenced areas or be in a position to employ and rely on the counsel of specialists.

3. Availability. The grantor or testator should consider whether the fiduciary selected has the time availability to properly discharge his duties. Also, the administration of a trust or estate generally is made easier when the trustee or executor is available at the place of the administration, although location should not be a determining factor.

4. Financial Responsibility and Responsiveness. Either a bank or individual trustee or executor must be financially responsible by reason of his or her own solvency and financial assets (or bond or surety), so as to be able to meet any financial obligations stemming from the trustee or executor's error or inattention to responsibilities.

5. Advantages of the Corporate Fiduciary. One of the major reasons for the selection of a corporate fiduciary as the original or successor trustee or executor is the fact that a corporate fiduciary may satisfy more of the requirements outlined above than an individual. Before selecting a corporate fiduciary, the grantor or testator should evaluate the fiduciary's past performance and track record as some evidence of the prediction of future performance, particularly in the investment area. Another benefit in selecting the corporate fiduciary is the fact that decisions may be made objectively, hopefully uninfluenced by family emotion. Additionally, special consideration must be given to the tax implications of naming a beneficiary as a trustee. Typically, a family member or a beneficiary who serves as the trustee must be subject to more restrictions and limitations under the trust than an independent trustee, in order to avoid adverse gift or estate tax consequences to the family member or beneficiary.

V. Power of Attorney

We also suggest the use of durable powers of attorney. A durable power of attorney permits the “attorney-in-fact” or “agent” to act for the creator of the power (the “Principal”), if necessary under the circumstances. A power of attorney may be useful if an individual travels, to permit someone to act on his or her behalf in his or her absence. Should the Principal become unable to care for his or her own financial affairs as a result of disability or incompetency, a durable power of attorney will permit someone to act for him or her. Finally, a power of attorney is useful if it becomes necessary to make gifts shortly before the Principal's death in order to minimize estate taxes.

A power of attorney may be a general power of attorney permitting the attorney-in-fact to act at any time. As an alternative, the power of attorney can become effective only if certain specified events occur. Such events could include two physicians stating in writing that the Principal is unable to care for his or her own affairs, or the Principal stating in writing that he or she wishes the power of attorney to be exercised.

VI. Health Care Power of Attorney

New Hampshire law enables an individual (“Principal”) to name an agent to make health care decisions for him or her, in the event the individual loses the capacity or understanding to make or communicate his or health care decisions. The individual can do this by signing a health care power of attorney ("HCPOA").

The extent of the authority granted to the agent under a HCPOA may be as expansive as those health care decisions that a Principal is entitled to exercise on his or her own behalf. Those health care decisions may include, but not be limited to, the power to withhold or discontinue life-sustaining procedures. The HCPOA may, however, provide guidelines, direction or restrictions regarding the boundaries within which the agent may make health care decisions.

Any HCPOA becomes effective when the Principal's physician certifies that the Principal lacks sufficient understanding or capacity to make or communicate health care decisions. The HCPOA remains effective during the Principal's incapacity. The HCPOA may be revoked by the Principal, if competent, either orally or in writing.

The HCPOA should not be confused with the durable power of attorney. The HCPOA is a separate document which deals with a Principal's health care choices and a durable power of attorney deals with financial and economic matters such as bill-paying, signing tax returns, and the purchase and sale of assets.

VII. Living Will

We recommend that clients consider executing a living will. Generally, a living will is a document by which an individual expresses his or her desire not to be kept alive artificially under certain extreme health circumstances.

Under the New Hampshire statute, in the living will the individual directs his or her physician to withhold or discontinue life-sustaining procedures if two physicians certify (i) that the individual has a terminal condition or a permanently unconscious condition and (ii) that death will occur whether or not life sustaining procedures are utilized or that the individual will remain in a permanently unconscious condition and the application of life sustaining procedures would serve only to artificially prolong the dying process.

An individual who executes a living will should provide a copy to his or her physician, any hospital that maintains the individual’s medical records, and the individual’s agents under his or her HCPOA. It also is a good idea to keep a copy in a location readily accessible to family members.