Monthly Planning Tips Archive

Communicating Your Estate Plans to Family Members

Parents sometimes find it harder to talk to adult children about their estate plans than it was, years earlier, to have “the talk” about where babies come from.  Nevertheless, it’s important for parents to speak to their offspring individually or as a group about estate plans they have made or intend to make.  Some or all of the following topics should be on the agenda:

• Does the parent have a will and/or a living trust?  Where are the documents located?  Who is the executor or trustee?  Who was the attorney who drafted the documents?  Other advisers?

• Does the parent have particular funeral preferences?  The child should know of any special requests concerning funeral services, burial, cremation, etc., and if pre-need arrangements have been made.

• Has the parent signed a living will or health care power of attorney that expresses their feelings about life-prolonging care?  Where are those documents located?

• Where does the parent bank?  Where are safety deposit boxes located?  Where can the keys be found?

• Talk with your children about the provisions in your will or trust, particularly if you are leaving more to one child than the others.  This “favoritism” may be due to health problems, financial setbacks or to “even out” assistance giving to others during your lifetime.  Whatever the reasons, discuss the plans with your children.  Don’t surprise them when the will is probated and leave them with the nagging question: “Why?”

• Consider a “letter of instruction” that distributes assets of sentimental value and give each child a copy.  Unlike a will or living trust, a letter of instruction is not a legal document, but it does express your wishes regarding items of personal property and can be updated without the formal requirements of a will.  If it’s important for one child to have a particular item, consider giving it to him or her now.  A gift also removes the value of the asset from your gross estate.

The goal of these discussions is to ensure that your estate plans work the way they were intended.  Most children will appreciate their parent’s candor and honesty is disclosing these arrangements in advance, and mom or dad usually will enjoy a sense of relief in knowing that their estate plan won’t come as a total surprise package.

 

 

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Avoid Hidden Losses in Your Estate

“Estate shrinkage” can be a serious problem for many American families.  We’re talking about the depletion of assets that occurs upon a person’s death, brought on by:

• Probate costs;

• Forced sale of assets;

• Insufficient “estate liquidity;”

• Income taxes;

• State death taxes;

• Federal estate tax.

Estates of all sizes are at risk for unforeseen losses and expense.  How can you protect your beneficiaries?  Some reduction is inevitable, but you can cushion its impact.

•Calculate the shrinkage.  Ask your advisers to forecast your estate settlement costs – taxes, administration expenses and debts. 

• Plan for estate liquidity.  Arrange for cash reserves (or assets readily convertible to cash) to pay the expenses that are likely occur.  Many estates have been forced into selling assets at “fire sale” prices to cover taxes, debts and other costs.  Strategies could include a savings program, investments, life insurance or a combination of all three.

• Plan for the orderly transition of any business interests.  Consider a buy-sell agreement with partners or shareholders that will keep the business intact, preserve its value and provide cash payments to your family.

• Plan to reduce probate costs.  Probate is the word used to describe the administration of a person’s estate, which includes determining if a valid will exists. The settlement of an estate can be a long, complex and sometimes expensive procedure.  Certain assets don’t go through probate, however:  life insurance, most jointly owned property, IRAs or other accounts with death beneficiary designations.  Furthermore, assets you transfer to a revocable living trust during life will not be subject to the delays, expenses and restrictions of probate.  These trusts may be especially helpful to people who own real estate in several different states and face “multiple probate.”  Lifetime gifts to heirs and charities escape probate and may reduce taxes, as well.

• Look for ways to reduce taxes. You can protect your estate (or that of a surviving spouse) against federal estate tax or state “death taxes” through lifetime gifts to family, trusts designed to reduce taxes and probate costs, and use of income-tax-burdened assets (such as IRAs and savings bonds) to satisfy charitable gifts you plan to make from your estate.

 

 

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Choosing Your Executor

Considerable thought should be devoted to carefully choosing an executor (sometimes called a personal representative) who will manage your affairs after death.  Your executor will be legally responsible for settling your estate and carrying out all the provisions of your will.  It is not an easy task, even though an estate attorney may be providing legal assistance.  The executor will have to:

• Probate your will.

• Assemble and safeguard your assets.

• Manage your investments temporarily.

• Pay estate expenses and legal claims.

• Arrange payment of state and federal income taxes and estate taxes.

• Distribute the estate to beneficiaries.

• Make final accounting to the courts of all receipts and disbursements from the estate..

Ideally, your executor would be not only fully competent to perform such tasks, but also sincerely disposed and motivated to meet the important and unique needs of your particular beneficiaries, including helping them with any special problems that may arise after your death.

It’s common to nominate a husband or wife as executor, or a competent and experienced friend, relative, professional adviser, or the trust department of a bank.  Or you may wish to follow the example of many who name a spouse, friend or relative together with the trust department of a bank, to serve as co-executors.  It may not be a good idea to have multiple family members serve as co-executors, since disputes may arise that may complicate or prolong estate administration.  But you may want to name an alternative executor, should the original person die, become disabled, move to a distant state or simply decline to serve.

 

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