Essential Ingredients for Any Estate Plan

What goals and objectives should an estate plan accomplish? Most people, if they reflected on the matter, might respond something like this:

• First of all, I want to provide fully for the economic security of my surviving spouse (assuming a spouse is in the picture);
• Next, I want to ensure that family members or others who depend on me financially are properly supported and cared for – especially those who are disabled or have special needs;
• I want to minimize any disappointment, family conflict or hurt feelings that might arise from the distribution of my estate;
• I would like to keep “death taxes” and probate costs to an absolute minimum, with more of my assets going to family and charities and less to the tax collector;
• I would like to leave the world a better place, and pass on what I’ve learned in life to the next generation.

Some people also have special situations that need to be addressed, such as the transition of a family business, or arranging for the care of beloved pets. And many would be pleased if the foregoing goals and objectives could be accomplished in the context of a plan that culminates in significant support for worthwhile causes and organizations. Several basic tools are the key to accomplishing the foregoing objectives;

• A thoughtful will should be the cornerstone of most estate plans. A will gives form and substance to a person’s concern for the future of family and other beneficiaries. There are, however, other practical opportunities and potential problems that should be considered in estate planning.
• A trust, created during life or in a will, may figure prominently in an estate plan. Through a trust individuals can provide income for family, transfer investment worries to a trustee of their own choosing, and perhaps even save on federal estate taxes and estate administration costs. The charitable remainder trust can also provide dual benefits to family and charitable organizations with meaningful tax and financial rewards.
• A living will or health care power of attorney (proxy) should be part of estate planning, providing doctors and family members with guidance in making health care decisions if an individual is incapacitated.
• A personal affairs record that provides detailed information about an individual’s finances, location of wills, insurance policies and trust documents, and explains funeral and burial preferences will prevent confusion and save time for family members.
• Total coordination of all estate assets – life insurance, jointly owned property, retirement benefits, everything people own – is absolutely vital to a smooth-working estate plan. Remember that life insurance and jointly owned property usually will pass independently of a will.
• Lifetime gifts to family members offer an avenue to gift tax savings as well as present satisfaction. Individuals can make separate gifts of up to $13,000 each year to as many different people as you desired, owe no gift tax and remove these amounts from the grasp of the federal estate tax. (Spouses can “split” gifts and increase the tax-free amount to $26,000 per year, per donee.) In addition, husbands and wives can make gifts of any amount they choose, no matter how large, to a spouse without owing any gift tax.
• Choosing an executor (personal representative at death) is an important step that can enable a trusted person to step in and administer an estate. Many people prefer the personal attention of a spouse or other close relative as individual executor, but a professional adviser or a corporate executor, such as a bank or trust company, may be better suited if an estate is very large or complex. A comfortable middle ground may be the selection of co-executors: one individual and one corporate.
• Business owners have unique planning needs and opportunities. A well-considered buy-sell agreement concerning an owner’s business interest can preserve continuity for the business enterprise and produce a source of cash to meet cash demands against the estate. Special tax breaks are available for family businesses and farms, but careful planning is needed for qualification.
• Arranging for liquidity in a person’s estate can prevent the untimely sale of valuable income-producing properties to settle the estate. An irrevocable trust is an excellent arrangement for providing the executor with the necessary estate liquidity. Property readily convertible into cash is placed in the trust, or life insurance sufficient to meet settlement costs is transferred to the trust. The trustee is then permitted to buy property from the executor or make loans to him to meet estate expenses – and the value of the trust will not be taxable in the estate.

<Back

Copyright © 2009 by R&R Newkirk. All rights reserved.