Estate Planning Basics
estate consists of all that you presently own. This will be modified
over time as you dispose of and gain new assets, as assets grow
in value, and if you inherit assets from a kindly relative. An Estate
Plan is a method of managing your assets during your lifetime, during
a possible personal incapacitation, and in distributing your assets
following your death. It consists of far more than a simple will
or revocable living trust. Authentic estate planning must also strategically
incorporate certain kinds of insurance plans, as well. Many professionals
do estate planing. This includes attorneys, CPAs, living trust sales
people, and insurance agents, among others. Each plans from their
own perspective. Authentic estate planning must take on a "global
view" of all issues. While attorneys may wisely prepare wills
and trusts, few are experienced in the strategic use of insurance
products to complement, or complete, an estate plan. Life insurance
agents are generally good in their field, but have little experience
in property ownership and how it can be passed to heirs. Living
trust salespeople generally have any knowledge about comprehensive
There are eight basic areas which need careful examination in authentic
Care Planning. Nearly everyone is acquainted with the high costs
of health care. For this cause personal health insurance is a
necessity both during a person's career years and after their
retirement. The lack of health insurance in view of a medical
emergency can easily lead to the bankruptcy of an estate. This
should include (1) a major medical health insurance plan, (2)
dental and optical plans, and (3) long term care insurance. Long
Term Care Insurance (LTC) is often thought of something for the
elderly. Even young people can suffer from illnesses or the result
of accidents which would require care in a long term care facility.
Personal health insurance plans generally offer very limited benefits
in this area. An LTC plan for a person under the age is 60 is
usually a wise investment.
Another area of related concern is Income Disability Insurance.
These plans pay a tax-free percentage of your salary if you are
incapacitated by a long term medical condition and cannot work.
Senior Medical Planning. Seniors, those over the age of 64, need
specialized medical insurance planning. This should incorporate
either a Medi-Care Supplementary Insurance Plan or participation
is a local "Senior HMO" plan. LTC insurance for seniors
can become expensive. In some cases a senior with sufficient funds
can purchase a Single Premium Deferred Annuity with an LTC rider.
This allows up to one-half of the value of their account be made
available if they must enter into a convalescent facility. Income
from a Charitable Remainder Uni-Trust can convert an highly appreciated
asset to an income stream which can pay LTC costs. Some life insurance
and major medical insurance plans include LTC riders, but these
are often very limited with only short term benefits with the
view of a future recovery from illness.
Liability Planning. Despite many alarmists crying out the possibility
of a personal lawsuit, these are not particularly common. A person
who owns their own home generally has a home owner's insurance
package which includes liability coverage. This is also available
in auto insurance packages. For those in doubt, and who have a
fairly risk-free lifestyle, personal liability insurance is avialable
at reasonable costs. This is called "umbrella liability insurance
For certain professions professional liability insurance is highly
suggeted. This particularly includes those with careers in the
medical profession. For employees who serve in a fiduciary capacity
to their clients, Errors and Ommission insurance coverage is suggested.
Insurance. This is a contract with a private insurance company
to pay benefits, generally on death, provided the owner of the
policy has maintained the periodic premiums. Some life insurance
companies offer plans which are combination "disability/retirement
fund/life insurance" plans. While interesting in concept,
life insurance plans depend on their investment success and
the future "numbers" may or may not be there on demand.
Life insurance should be purchased for three basic reasons:
(1) family support if the bread-winner dies, (2) for personal
and/or business debt resolutions, and (3) as a fund to pay estate
taxes. On the other hand, a life insurance policy on a husband
is often the largest "nest egg" that a surviving widow
As a cash-accumulating retirement vehicle, it is a most uncertain
Interest Planning. Not all estate planning clients own their
own business, but if they do some specific business-related
planning must be considered. The most basic is business property
and casualty insurance coverage. Added to this would be business
continuation insurance. There should be some written plan, included
in a business owner's will or trust, to resolve the future of
a business if the owner dies. What will happen to business assets?
How will customers be handled? Who will "take over"
the business? A written and periodically reviewd business continuation
plan in view of death is a business necessity.
Planning. Most young people presume that they will reach retirement
age and that in so doing, desire the most comfortable life possible.
For this cause, they will need some sort of investment strategy.
This can include stocks, bonds, annuities, 401(k) plans, IRAs,
and other available options. Basically, any plan is preferable
to no plan. An additional source of retirment income is converting
highly appreciated assets, such as real estate and stocks, into
an income stream paid by a Charitable Remainder Trust. There
are major tax benefits for doing this (both income tax and estate
tax deductions, and legal capital gains tax evasion) and, in
some cases, the income stream can be passed on to a child.
Estate Taxes. The Federal government and most states have estate
(or death) taxes on the value of an estate following the death
of the owner. The three options to examine, if the estate is
large enough to be liable for this taxation, is (1) "shrink"
the size of the taxable estate (through gifts, etc.), (2) plan
on your heirs paying the tax from your estate assets, or (3)
creating some fund, apart from your taxable estate, to pay the
tax for your heirs. This third option can be done through the
use of a funded Irrevocable Life Insurance Trust. One must also
keep in mind that while their present estate may not be large
enough for estate taxation, the growth of their assets may "push"
their estate into a taxable position. And, estate tax laws change.
Estate planning has to change as well.
Estate Distribution. The assets which people own will still
be here (in most cases) after they have passed away. A plan
of estate distribution needs to be established. Without a will
(dying "intestate") means that the probate court of
your state of residence will distribute your estate to your
relatives according to as set plan of how "close"
they are to you relationally. A Will gives you greater freedom
in directing where your assets will go and in this you can name
the guardians of any minor children and a business resolution
plan if you own a business.. If the estate is sufficiently large,
a will must pass through the oversight of a probate court. The
legal expenses for doing this vary by state and by the size
of the estate. The process can be relatively brief or take a
long period of time. This depends on the complexity of the estate
and how crowded the probate calendar happens to be. A living
revocable trust can do all that a will does and significantly
more. Assets held in a revocable living trust are exempt from
the probate process. This may save the estate both time and
money in the distributon of its assets. If you are unhappy with
your children, the lack of personal estate planning is an excellent
act of revenge on your part from the grave.