Estate Planning

What is Estate Planning?

Estate planning is the process of setting up a clear set of instructions about how your property and assets will be managed, both during the course of your life (if you are unable to care for yourself at any point) and after your demise. It’s primarily designed to protect your family and the people you care about, as well as charities and social causes you support.

Despite the common belief that estate planning ends with writing a will, this dynamic process is actually far more extensive, and can be used for more than just the proper disposal of your assets. It can help you meet your financial goals and objectives, with a holistic approach that includes tax, business and medical planning.

What does Estate Planning Involve?

Typically, the creation of an estate plan takes the client’s needs and goals into account, which vary tremendously for each individual. However, the basic objective of the process is to ensure that there is no ambiguity with estate distribution and probate management, and maximize your estate’s value through effective tax planning and other financial tools.

To put it very simply, the process involves the anticipation of your future needs and the needs of your loved ones. Here are some key points to take into account:
  • Who will manage your property and how this will be done for your benefit, in case you cannot do so on your own during your lifetime.
  • The value of your estate and a list of all the assets you own, and a list of the beneficiaries to whom you want to leave these assets
  • Who will provide personal care and manage healthcare decisions while you’re alive, and how, if you cannot do this yourself.
  • Whether there are any situations where your property should be distributed before your demise, and how this will be done.
  • How you want your funeral to be arranged, whether you should be cremated or buried, where your remains should be interred, etc.
  • Who will receive your property after your death, and how these assets will be distributed amongst multiple beneficiaries.
  • Who will take care of minor children during your lifetime, if you cannot do so, and act as their guardians after your death.

Who Needs Estate Planning and Why?

Every individual needs to plan their estate, regardless of whether their property is high-value or not, or even whether they have any beneficiaries to consider. Of course, if you have a family and loved ones, their financial security and comfort is a priority.

Since estate planning is not restricted to asset distribution alone, it’s important to set down proper instructions and designate somebody who can make healthcare, financial management and personal care decisions on your behalf, so that you can enjoy the best quality of life possible even if you’re unable to make these decisions on your own.

For smaller estates, the process can be used for designating beneficiaries, distributing your assets and planning debt repayment may be enough. On the other hand, high net worth individuals with larger estates may be able to gain from asset preservation, tax minimization and other estate planning services too.

If you have not planned these aspects of your estate, the legal system will pick someone to handle your asset distribution and personal care management, and you’ll have no control over them during your lifetime. After your death, your property will be distributed amongst your heirs according to intestate (dying without writing a will) succession rules, or go to the state if you have no family.

How is the Estate Calculated and What Does It Include?

Your estate includes all your assets, and the various forms of title or ownership these assets may take, i.e. whether in your name alone or jointly owned with a spouse, parent, business partner or other individual.

Here are some common examples of assets that are considered part of your estate:
  • Financial Accounts – Your savings account in a bank, retirement accounts, stocks and bonds, life insurance proceeds, etc.
  • Money Owed to You – Tax refunds, inheritance funds, outstanding loans (from your debtors), etc.
  • Real Estate Investments – Your home or office, besides any other land or property you own, etc.
  • Other Assets – Cars, furniture, jewelry, art, etc.

After deducting any debts you owe like mortgages and car loans, the “fair market value” of these assets is calculated and added up to estimate the value of your estate. Whether or not your estate will be taxed after your death is decided based on this value, as well as any capital gains taxes that your beneficiaries may need to pay.

Take possible taxes into account while planning your estate and ensure that there are enough funds available to cover them.

What are the Major Elements of Estate Planning?

Devices – Wills, trusts and probates are common parts of estate planning:

  • What is a Will? – Wills are well-known estate planning devices, which list beneficiaries for an individual’s property after their death, as well as an executor to handle the distribution of assets through trusts or as gifts, as well as debts, tax and expenses. Sometimes, a will may name guardians for the care of minor children and management of their inheritance too.
  • What is a Trust? – Trusts (e.g. a family trust, irrevocable trust, living trust, revocable trust, etc.) are used to manage assets during the estate holder’s lifetime and after their death. Revocable living trusts are legal documents that can act as partial substitutes for wills – assets are put into them, administered by a trustee for the estate holder’s benefit while they live, and then distributed to their beneficiaries after they die. Estate holders can act as trustees during their lifetime.
  • What is Probate? – Probate is a public process supervised by the court where property is distributed to beneficiaries by an executor, after the estate holder’s demise. The executor named in a will takes control of the estate in order to pay off pending debts and manage asset distribution after the court’s approval. If there’s no will, the court appoints an administrator after a family member or other individual approaches them.
Other estate planning elements include:
  • Taxes
  • Probate Avoidance
  • Trust provisions for beneficiaries
  • Mediation
  • Designation of an IRA beneficiary

How are Holdings Managed?

The way in which you hold title to holdings, and the nature of your assets, will affect the way they are taxed and managed. These include community property and separate property, tenants-in-common, joint tenancy with right of survivorship and community property with right of survivorship.

Are there Any Other Methods of Leaving Property?

Proceeds from life insurance plans, 401(K)s, IRAs and other qualified or non-qualified retirement plans, a few kinds of “trustee” bank accounts and POD (Pay On Death) or TOD (Transfer On Death) assets, which are common titles for savings bonds, can be transferred directly to beneficiaries.

Who Should Help with Estate Planning Documents?

Since changes can occur with your beneficiaries, property and inheritance laws, you should keep updating your plan or consult a professional, like:
  • Certified Financial Planners (CFPs)
  • Certified Public Accountants (CPAs)
  • Life Insurance Professionals
  • Bank Trust Officers
  • Pension Consultants
  • Personnel Managers
Whether you’re looking for assistance with the required documents or the process itself, qualified and experienced estate planning professionals can guide you through the details.