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Estate Planning: What is an estate plan?


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 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Without estate planning, an estate owner may die without a will or with an out-of-date will.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.


The will is the most valuable instrument in estate planning. Among other things, a will can—

    1. Designate who should receive various items of the testator's probate property, and provide a line of beneficiaries in the event that the primary beneficiary predeceases the testator;
    2. Prescribe whether the property should be transferred outright or in trust, and if in trust, whether income should be paid or accumulated, upon what events or criteria principal can be invaded, and when outright distributions of part or all of the trust corpus should occur;
    3. Coordinate the amount transferred to a spouse under its terms with property passing to the spouse outside the will in order not to permit too much property to qualify for the marital deduction resulting in unnecessary estate tax on the surviving spouse's estate;
    4. Designate the fund from which estate taxes are to be paid;
    5. Appoint guardians for children, executors and/or trustees; and
    6. Provide the fiduciaries with adequate powers to carry out the administration of estate asset


The estate planner has a variety of instruments available for the disposition of assets required by the estate plan to achieve the planning goals of the estate owner. An important aspect of estate planning is the proper selection of the appropriate instruments and their use in a way which best provides for the desired dispositions to the beneficiaries at lowest tax and administration costs.


Formal estate planning always includes the execution of a will and often involves the creation of inter vivos trusts, making gifts, creating employee benefit plans, arranging for the valuation and disposition of a closely-held business interest, etc.

One or more professional estate planning advisors are employed in the task of accomplishing the best possible result. The two alternatives to formal planning are:

    1. No planning (intestacy) and
    2. Informal planning by the estate owner himself.


Intestacy, which is the legal term for death without a valid will, results in the intestate decedent's “estate plan” being created for him by the laws of the state in which he died domiciled. These local laws provide for the distribution of property owned by a decedent who dies without a valid will and without having chosen his own beneficiaries either by means of the form in which the property was owned, or by contract (e.g., insurance policy or employee-benefit plan under which the decedent was able to designate beneficiaries and the form and amount of their shares).

Local intestate distribution statutes follow the general pattern of distributing the intestate's estate to his closest surviving relatives. But the amounts to which each relative is entitled and the degrees of relationship to which the intestacy law extends vary from state to state. Intestacy laws are rigid and objective. They deal only with the degrees of relationships, and not with the individual circumstances of each estate owner's family situation.


Some of the problems inherent in permitting property to pass by intestacy are:

    1. People whom the estate owner might wish to benefit, but who are not legally related to him will take nothing.
    2. The beneficiaries take their shares outright, regardless of their age or ability to handle property.
    3. When the beneficiaries are minors, guardians must be appointed to handle the property. The choice of the guardian lies with the local court, and guardians fees must be paid out of estate assets.
    4. A surviving spouse will usually not receive an adequate share of the estate if there are children surviving, since at least half of the estate will go to the children.
    5. The amount passing to a surviving spouse as his or her intestate share will not be enough to take full advantage of the federal estate tax marital deduction.
    6. Estate taxes may be payable which could have been avoided. This will happen where full use of the marital deduction might have avoided estate tax but the shares passing to the children under the intestacy laws exceed the amount protected from federal estate tax by the unified credit.
    7. Additional estate administration expenses will be incurred. Examples are fiduciary's bonds and guardian's fees which could have been eliminated by appropriate provisions in a will.
    8. The person appointed to administer the decedent's estate will be chosen by the court, and the choice will be based primarily on the degree of familial relationship to the decedent and not on the competence of the person to handle the administration of the estate.
    9. If the decedent leaves minor children and no spouse, the choice of the children's guardian rests with the court and often results in litigation concerning who is best qualified to care for the children, a result which is not in the best interests of the children.
    10. If the decedent is not survived by close family members, his estate will escheat to the state.
    11. The powers of the chosen fiduciary to handle the property left by the intestate decedent are restricted to those granted under local law, and the fiduciary must often seek permission from the court before he can act. This results in delay which can be costly to the estate and in additional administration expenses.


Trusts are an integral part of estate planning. They provide a level of sophistication and flexibility available in no other estate planning device. The purpose of this letter is to point out to you the general advantages (and disadvantages) of using the trust form.

A properly structured trust can —

    1. Insure flexibility, allowing adjustments in distributions of income and principal according to the needs of the beneficiaries;
    2. Protect beneficiaries against the undue influence of others;
    3. Protect a disabled beneficiary, and assist him in managing assets;
    4. Use the laws of a nondomiciliary state, if they are more favorable than the state where the grantor is domiciled;
    5. Avoid supervision by the court;
    6. Offer a barrier to challenges made by disgruntled heirs;
    7. Provide continuity of income and trust management after the grantor's death, if established during the life of the grantor;
    8. Avoid probate, to the extent that assets are placed in an inter vivos trust;
    9. Protect the nongrantor-beneficiary against the claims of creditors;
    10. Protect beneficiaries, including grantor-beneficiaries, against their financial inexperience and relieve them of investment responsibility; and
    11. Provide for post-death contingencies, including the premature death of a beneficiary.

However, despite the sophisticated planning opportunities that are available with trusts, a trust is not always the right device for everyone. The advantages of a proposed trust should always be compared with alternative methods and weighed against potential disadvantages (for example, the loss of control that a grantor or beneficiary may experience).

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