Estate planning is a process involving the counsel of professional advisors who are familiar with your goals and concerns, your assets and how they are owned, and your family structure. It can involve the services of a variety of professionals, including your lawyer, accountant, financial planner, life insurance advisor, banker and broker. Estate planning covers the transfer of property at death as well as a variety of other personal matters and may or may not involve tax planning. There are many questions that you must ask yourself before beginning your estate planning.
First, what is involved in estate planning? There are many issues to consider in creating an estate plan. First of all, ask yourself the following questions:
o What are my assets and what is their approximate value?
o Whom do I want to receive those assets-and when?
o Who should manage those assets if I cannot-either during my lifetime or after my death?
o Who should be responsible for taking care of my minor children if I become unable to care for them myself?
o Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?
Second, who needs estate planning? You do-whether your estate is large or small. Either way, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself. If your estate is small, you may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets. If your estate Trust administration is large, your lawyer will also discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of estate tax which otherwise might be payable after your death.
Third, are there other ways of leaving property? Yes. Certain kinds of assets are transferred directly to the named beneficiaries. Such assets include:
o Life insurance proceeds.
o Qualified or non-qualified retirement plans, including 401(k) plans and IRAs.
o Certain “trustee” bank accounts.
o Pay on death (or POD) assets, a common title on U.S. savings bonds.
Keep in mind that these beneficiary designations can have significant tax benefits and consequences for your beneficiaries-and must be carefully coordinated with your overall estate plan.
Fourth, what are estate tax considerations? In addition to the income tax issues described above, the value of the assets in the Plan on P’s death will be included in P’s estate when determining estate tax liability. Unless P’s beneficiary is P’s spouse or charity (and the marital or charitable deduction applies), the Plan assets could be subject to estate tax of 45%. If assets are withdrawn from the Plan to pay this tax, that withdrawal will generate an income tax liability on top of the estate tax liability.
The core document most often associated with estate planning is a will. A will is a writing specifying the beneficiaries who are to inherit the testator’s assets and naming a representative to administer the estate and be responsible for distributing the assets to the beneficiaries. A will provides for the distribution of property owned by you at the time of your death in any manner you choose (subject to the forced heirship laws of some states that prevent disinheriting a spouse and, in some cases, children). Your will cannot, however, govern the disposition of properties that pass outside your probate estate (such as certain joint property, life insurance, retirement plans, and employee death benefits) unless they are payable to your estate. If a will provides for the outright distribution of assets, it is sometimes characterized as a simple will. If the will establishes one or more trusts, it is often called a testamentary trust will. Alternatively, the will may leave probate assets to a preexisting inter vivos trust (created in your lifetime), in which case it is called a pour over will.
