Estate Planning Basics

Your 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 estate planning.
There are eight basic areas which need careful examination in authentic estate planning:

  1. Health 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.
  2. 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.
  3. 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 coverage."
    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.

  4. Life 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 may have.
    As a cash-accumulating retirement vehicle, it is a most uncertain product.

  5. Business 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.

  6. Retirement 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.

  7. 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.

  8. 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.

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