The Basics of Estate Planning

Most people have a simple methodology for estate planning. That method is avoidance. However, avoiding estate planning issues, or waiting too long to take specific common sense steps toward estate planning can be devastating to your estate and your heirs.

Estate planning and financial planning go hand in hand. To accomplish effective estate planning, it is necessary to take into consideration such factors as the size of your estate, the types of assets contained within your estate and the prospective tax bill at the time of your death. It is essential to discuss these matters with an estate planning attorney and financial professionals.

Basic estate planning starts with a will. Regardless of the size of your estate, or the potential tax liability, everyone should have a will. That time, expense and trouble to your heirs of administering the estate of someone who dies intestate may be avoided by a simple will. A simple will can be prepared for a small sum. Administering an estate for an individual who died intestate can be expensive even if there is no dispute among heirs.

A will must be properly prepared and executed and should contain at a minimum, the following:

1. Name an executor;
2. Establish the guardian for any minor children;
3. Establishing a Trust for minor children and a Trustee of such Trust; and'
4. Provide the method of distribution of assets in the estate.

Other documents that should be considered include a living will and a durable power of attorney for health care. The purpose of a living will is to affirmatively state the party's intent concerning instructions to withhold or withdrawal of life sustaining procedures if you become terminally ill and can no longer communicate your intentions. The durable power of attorney for health care allows you to appoint another person with the authority to make health care decisions in the event you is unable to do so.

Once you have a will, living will and/or durable power of attorney in place, depending upon the amount of your estate and your relationship with your heirs, you should consider various vehicles to reduce your estate tax liability, which may include the following:

1. A by-pass trust which would allow both you and your spouse to take advantage of the $600,000.00 unified credit;
2. Consideration of how to title your assets during your life to lower the amount of your estate at the time of your death;
3. Making gifts to your heirs during their lifetime;
4. Irrevocable life insurance trust which allows a person to use life insurance to pay taxes and/or provide benefits outside of your estate, thereby avoiding estate taxes on the life insurance proceeds;
5. A living trust which under some circumstances can be deemed a will substitute; and
6. Partnerships, use of corporate strategies, such as a Limited Liability Company, Buy/Sell agreements and other vehicles to accomplish ease of transfer and continuity of business in the event of death.

Regardless of what form or format your estate planning takes it is important that the executor, trustee and/or heirs know of the location of the original documents. It is also advisable that the proposed executors, guardians and trustees, acknowledge and agree to assume the named roles and to accept the designated compensation therefor. Further, it is appropriate to make decision concerning funeral and burial plans and intentions well known, in advance of death.

Finally, your will, trust or estate plan is not the type of thing that which, once done, can be forgotten. Because of the dynamic nature of a person's estate, your estate plan and financial planning should be reviewed and reconsidered at lease every three years or immediately upon any major life changes such as divorce, birth of child, or death of heir, executor, trustee or guardian.