WHAT IS “ESTATE PLANNING”
?
Many people spend a considerable part of their time in an
attempt to accumulate enough property so that they can enjoy
their own lives and, at death, provide for their loved ones.
“Estate planning” encompasses the accumulation
and disposition of property in a manner which permits the
greatest possible fulfillment of these goals.
When an individual no longer needs to use his entire
income to provide for his day-to-day living expenses,
he must decide what types of property to acquire, how
to handle what he owns, and when and how to dispose of
it. The process which attempts to direct such lifetime
decisions towards the ultimate goal of providing post-death
security for the individual's heirs is “estate planning.”
THE PURPOSES OF ESTATE PLANNING
The primary goal of estate planning is to assure the transfer
of a decedent's property to the beneficiaries of his choice
at the smallest possible financial and emotional cost. During
the course of a lifetime various types of property are accumulated
and many personal relationships are developed. The twin
foundations of all estate plans are the assets comprising
the estate and the characteristics of the intended beneficiaries.
Without estate planning, an estate owner may die without
a will or with an out-of-date will. In addition, if the
types of property comprising the estate and the form of
ownership of estate assets have not been properly integrated
with the will, the estate plan will fail to accomplish
its purpose. Some results of an unplanned estate include:
the “wrong” beneficiaries inherit; the property
is transferred in an unsuitable form, e.g., it passes
outright to beneficiaries incapable of handling property,
or it is tied-up in trust when the circumstances at the
time of death warrant outright distribution; children
inherit portions of a parent's estate, leaving the surviving
spouse with insufficient funds; unnecessarily high estate
taxes diminish the estate; unnecessary estate administration
expenses are incurred; and a lack of liquidity may result
in the forced sale of estate assets to raise money to
pay expenses and taxes. The final result is that the decedent's
survivors, in addition to the normal trauma caused by
his death, often experience intra-family bitterness and
reduced financial security.
A properly planned estate, on the other hand, produces
positive results and reduces conflict and hardship. For
example, an up-to-date will, based on the circumstances
existing at the time of death should result in the orderly,
sensible and effective disposition of the testator's property
to the desired beneficiaries and in the appropriate form.
A will also avoids the application of local intestacy
laws which can require the outright distribution of portions
of a decedent's estate to his aging parents, who may not
need it, or to his children, who may not be able to handle
it, all to the detriment of the surviving spouse. A will
can also reduce estate administration costs by relieving
the fiduciaries of the necessity of obtaining costly bonds
and by providing for guardians, when necessary. In addition
a testator's appointment of a competent executor who is
given proper powers will facilitate the orderly administration
of the estate and prevent potential disagreement or litigation
about who should be the estate's representative and how
he should carry out his duties.
In addition to the will itself, a well planned estate
can achieve other significant benefits. An estate which
contains a closely-held business provides a good illustration
of the value of proper planning. Since the valuation of
a small business is always difficult and usually leads
to controversy and possible litigation with Internal Revenue
Service, taxes and administration costs, (e.g., legal
fees) can be saved if efforts to fix the value of the
business are made prior to death e.g., providing for buy-out
or stock redemption at a pre- determined price. Also,
when a small business constitutes a major asset of an
estate, it is necessary to provide for liquid funds with
which to pay the estate's taxes and administration expenses
in order to avoid the necessity of a forced sale of the
business itself. A simple method of providing such funds
is through the purchase of adequate amounts of life insurance,
on the estate owner's life, the proceeds of which will
be available to pay the estate's expenses.
Consideration should also be given to the qualification
of the estate for the payment of estate taxes in installments.
Pre-death transfers of some of the estate owner's non-business
property to insure that the business will constitute the
required percentage of the value of the estate to qualify
for installment payments should be considered by the estate
planner.
Finally, estate planning can result in reducing the
potential income taxes of the estate owner and his beneficiaries
and the estate tax itself. Tax saving involves informed
decisions on such issues as who should own property and
what property to own, whether it should be owned jointly
or separately, whether and when lifetime transfers should
be made, whether bequests should be outright or in trust,
and whether the fullest allowable marital deduction should
be taken and how to be sure it will be allowed.
The successful achievement of the results which estate
planning is designed to accomplish depends completely
upon the willingness of the estate owner to provide his
advisor with honest and complete information as to his
assets and his intended beneficiaries. In order to convince
a client to spend the time, effort and money required
to obtain a properly planned estate, the estate planner
must be able to 1) describe the benefits to be attained
and 2) design an effective plan. This service intends
to provide the answers to the “whys” and “hows”
of estate planning and administration.
WILLS
The will is the most valuable instrument in estate planning.
Among other things, a will can—
