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Estate Planning Concepts

Estate Planning Concepts Explained

Everyone has an estate plan. It is either one that you have developed to meet your particular needs and desires or the State has developed an estate plan for you. People who die without a will or trust die "intestate." State law dictates how the assets of a person who dies intestate will be distributed. In most cases, intestate estates must be probated through a court proceeding that results in a distribution that you would not want. Fortunately, these undesirable results can be avoided by having a plan that includes a will or a living trust that is designed for your particular needs.

The Estate Plan

What is an estate plan? An estate plan is an arrangement for the use, conservation and transfer of one's wealth. The process involves the creation of an estate, the growth of the estate to meet the needs of the owner and his or her family and the preservation and protection of the estate from unnecessary taxes and costs.

Estate planning is often a cooperative effort between you, your attorney, and other appropriate members of an estate planning team, such as a financial planner, a life insurance agent and a CPA. The plan should not be thought of as a series of separate transactions but, rather, as an ongoing process that evolves as your needs, goals and family change, as laws change, and as new estate planning tools and techniques are developed. Proper planning requires professional thoroughness that respects the overall well being of you and your family. Most importantly, however, it should be a plan that is carefully designed to meet your goals.

Estate planning goals should include the following:

  • Your control and best utilization of your assets during your life.
  • A business exit strategy if you have an ownership interest in a business.
  • Providing instructions for your care and the management of your assets for you and your family if you become incapacitated.
  • Provisions for asset preservation if you or a family member require long term health care.
  • A plan of distribution that will leave your assets to whom you want, when you want, and with whatever controls you want.
  • Avoiding probate.
  • Preserving the assets of your estate by minimizing taxes and post death administrative costs -- not only in your estate, but also in the estates of your spouse and descendents.

Common Estate Planning Tools

Joint Tenancy

Joint tenancy is a very simple estate planning tool. However, the joint tenancy form of ownership may have many unintended and unfavorable consequences. For example, the entire property is usually subject to attachment by a creditor of any one of the joint tenants. There are also significant estate, gift, and income tax problems that can arise from joint tenancy. If not given proper consideration as part of a comprehensive estate plan, holding property in joint tenancy can create unintended bad results.

Designation of Beneficiaries

The designation of beneficiaries of insurance and retirement plans is another form of estate planning that can have unintended results. Again, these tools should be coordinated with the rest of a well-considered estate plan to assure proper distribution and avoid undesirable tax consequences. Serious consideration must be given to whether it is better to have an individual or a trust as the designated beneficiary to obtain the best income tax, estate tax and personal result for your particular situation. It is always best to consult an accountant or attorney with expertise in these types of issues.

As you can see, unintended and unfortunate results can occur without proper planning.


A Will is a document that declares how a person wants his or her assets distributed after death, and who is in charge of administering the estate. A Will may provide for a Guardian of the testator's children.


  1. Revocable or amendable by testator at any time before Death.
  2. Gives the testator control over the distribution of estate assets.
  3. Inexpensive to establish, in relation to a living trust plan.
  4. Avoids the extra cost and confusion that often occur when a person does not leave a Will.


  1. Must be probated at death. (Probate is required with or without a will in the absence of some other probate-avoiding device like a Living Trust or Joint Tenancy with Right of Survivorship accounts.)
  2. Probate is a matter of public record and subject to review or abuse by others. A living Trust is not a matter of public record.

What is Probate? Probate is the court proceeding to supervise the settling of all the legal and financial matters of the deceased. Probate takes a minimum of six months to complete.

Revocable Living Trust

A Revocable Living Trust is an arrangement by written document in which a person's assets are held, managed and distributed by a trustee or co-trustees. You can be the trustee or co-trustee of your own Trust. Trust separates legal ownership from beneficial use of the property. The Trust must specify:

  1. The trustor, or the person who created the trust.
  2. The trustee, who manages the property. This is normally the person who has established the trust.
  3. The successor trustee, who assumes management of, or distributes the Trust property after the trustor dies and distributes the trust property to the beneficiaries.
  4. The beneficiaries of the trust who are entitled to receive the trust property at death or sometime thereafter.
  5. The property that is transferred to the trust.
  6. The terms of the trust, including revocability and amendability.


  1. Avoids Probate.
  2. Very flexible, revocable and amendable any time prior to death. New property can be added to the trust.
  3. Simple and inexpensive to maintain if you and/or your spouse serve as trustee.
  4. The trust plan may be used creatively to minimize death taxes involving large estates upon the death of the second spouse.
  5. Can be used to provide for disabled spouse or children, or children of previous marriages.


  1. Costs more to establish. However, it is usually less expensive than probate.
  2. It is more work to set up since you must change the name on titled property to the name of the trustee.
  3. Titled property such as stocks, large accounts and real estate acquired after the trust is made must be specifically added and titled under the name of the trust or trustee.

Basic Rules on Estate Taxes

  1. Unlimited Marital Deduction- allows first spouse upon death, to leave an unlimited amount of property to the surviving spouse tax-free. But on the death of the second spouse everything left after death over the current exemption will be subject to estate taxation.

  2. Estate taxes start at 37%.

  3. Estate Tax Exemptions

    2000 and 2001 $675,000
    2002 and 2003 $700,000
    2004 $850,000
    2005 $950,000
    2006 and thereafter $1,000,000

Durable Powers of Attorney for Healthcare or Property

Empowers a person of your choice to represent you and make medical or financial decisions for you in case of incapacity or a medical emergency. This can remove the necessity for a guardianship in many cases and reduce costs and confusion.

Living Will

This document limits a doctor's heroic efforts at prolonging life artificially when death is inevitable. This is very important because the value of an estate can slip fast otherwise due to futile procedures and resulting medical costs.

Long Term Health Care Planning

Since people are living longer, planning for the possibility of long term health care is becoming a critical component of estate planning. Long term health care is costly. Whether the health care is provided in a nursing home, the patient's home or some intermediate care facility, costs can quickly deplete any but the largest estates. For example, nursing home care costs are currently running on an average of about $40,000 per year.

Long term health care planning should include consideration of long term care insurance or asset preservation where no long term care insurance is in place. Federal and State spousal anti-impoverishment laws and regulations allow patients to qualify for government benefits to pay for long term health care while significant assets are retained for the support and comfort of spouses and family members.

However, early planning is essential in order to help preserve assets. It is important to meet with an attorney with expertise in this area as early as possible to explore your rights and opportunities for asset preservation.

The Complete Plan

A thorough and complete estate plan will normally involve a Will or Trust, a Health Care Directive, Powers of Attorney for Health Care and Property and Long Term Health Care planning. Estates that anticipate a possible estate tax liability will also involve some tax planning to ensure that the first spouse to die uses his or her estate tax exemption. These documents work together to create a comprehensive estate plan to help you meet your estate planning goals and protect the interests of you and your loved ones.

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