Estate Planning Overview
We are continually developing this section of the website to provide more educational information for our clients and others interested in learning more about estate planning. This page offers some basic information. See also How We Operate for more information on the mechanics of setting up an estate plan.
What is Estate Planning?
Estate planning entails planning in advance for:
- Distribution of your property at death
- Naming health care and financial managers in the event you become incapacitated during your lifetime
Why Do I Need an Estate Plan?
If a person owns property in his/her own name, at death the probate court will order the assets distributed in accordance with a written will — or, if there is no will, by the laws of intestate succession. This court process is called probate.
Probate can be costly, time-consuming, psychologically traumatic, and can frequently entail unwanted publicity. In appropriate cases, a carefully drafted living trust can help a person avoid the unnecessary disadvantages of probate.
What Are the Advantages of Having an Estate Plan?
- Provides the quickest, most efficient, and least costly way to transfer property to the people you want to receive it.
- Saves on costly income and death taxes.
- Precludes the need for probate, an expensive and prolonged court proceeding.
- Provides emotional security for you and your family.
- Allows you, rather than the state, to select your heirs and the amount of property to be distributed to each heir.
- Allows you to provide most effectively for beneficiaries with disabilities and others whom you want to protect.
- In the case of a second marriage, allows you to provide for your spouse and then your children.
Types of Trusts
Most estate plans consist of a Revocable Living Trust during the lifetime of the individual client. In many cases the Revocable Living Trust terminates after the death of the creator of the trust when the assets are distributed to specified beneficiaries.
In some cases, additional trusts may be created on the death of the creator. For some married couples an estate plan may provide that on the death of the first spouse the revocable trust is divided into new trusts which are known as a Survivor’s Trust, an Exemption Trust (also know as a Bypass of “B” Trust) or a Marital Trust (also known as a “QTIP” Trust).
In other cases, however, the creator of the trust may decide not to leave assets outright to a beneficiary. A beneficiary may be immature, have special needs, have addiction or mental health issues, or be too young to receive a substantial distribution of cash. In such cases the estate planning specialist uses a variety of trusts to manage the assets for the individual beneficiary: a Discretionary Trust, a Special Needs Trust, a Trust for Minors, or an IRA Designated Beneficiary Trust.
For individuals with high net worth the Revocable Living Trust may also create on the death of the trust creator a special irrevocable Generation Skipping Transfer Trust for the benefit of a beneficiary.
Special Rules Regarding Distribution of Tax-Deferred Assets at Death
Many individuals now have a substantial part of their net worth in the form of tax- deferred accounts, such as IRAs, 401(k), 403(b), and Qualified Tax Sheltered Annuities. The distribution of these tax-deferred assets at death has serious income tax consequences. An estate plan should consider the income tax issues presented on the death of the owner of such assets. Individuals should be given guidance on the proper way to fill out beneficiary designation forms on tax-deferred accounts as well as on withdrawal options at the death of the owner.