Solutions: Estate Planning
Disclaimer: We are not attorneys and provide
neither legal advice nor documents. You should
consult with a legal advisor who is competent
in estate and business planning for advice relating
to your personal and/or business estate plan.
We work with attorneys either brought to us or
to which we refer our clients. We coordinate our
skill sets with those of competent attorneys to
achieve optimum estate planning results.
Estate planning entails taking measures to manage
your estate and affairs during both your mortal
and financial lifetimes, and can include business
as well as personal interests. While reducing
taxes is an important consideration of estate
planning, too often we find that professionals
advising on estate planning tend to focus solely
on the tax aspects of estate transfer while substantially
ignoring asset protection strategies that can
provide additional benefits to estate owners and
beneficiaries. To illustrate, leaving an inheritance
outright to heirs may satisfy the tax related
issues; however, leaving an inheritance in trust
may better protect the inherited asset from being
compromised by divorce, bankruptcy, judgment,
IRS levy, etc.
Assets with named beneficiaries, such as life
insurance policies or retirement plans, are distributed
directly to those beneficiaries and do not pass
through estate planning documents such as wills
or trusts. The same is true of assets titled Pay-on-Death
or Transfer-on-Death. We consider individual assets
to determine whether to name beneficiaries, or
whether an alternate form of ownership makes sense.
Proper titling may help assure that assets are
protected from depletion by a judgment or fraud.
Life insurance and long-term care insurance are
two financial products that are often used in
estate planning. If estate taxes must be paid
due to the size of an estate, life insurance provides
an economical way to satisfy the tax due while
preserving assets for heirs. Additionally, the
leverage created by paying premiums that are a
fraction of the death benefit means that paying
taxes with life insurance dollars costs pennies
for each dollar generated by the death benefit.
Long-term care insurance (LTCI) protects the value
of an estate should care be required. Both life
insurance and LTCI are discussed in the protection
area of this site.
Personal estate planning documents commonly include
wills, trusts, medical and personal powers of
attorney and living wills. The operative concept
with respect to these documents is “who
is the next best person to handle your affairs
should you be either unwilling or unable to handle
them yourself.” It is common for spouses
to name each other first in most capacities. Qualities
to look for in one who will handle your affairs
include; the ability to reason and not be unduly
influenced by competing opinions and demands of
family members, their spouses and children; prudence
with respect to handling finances; and compassion
and empathy for individual family members and
their unique needs. When minor children lose parents,
both custodial and financial considerations must
be addressed. In our experience it is best to
separate those responsible for custodial care
from those managing the financial aspects associated
with the care, maintenance and education of those
A difficult question to address is, “who
determines when I am unable to handle my affairs?”
We suggest your “disability panel”
be comprised of your children (by unanimous consent)
in consultation with your personal physician and
perhaps a specialist if there are extenuating
health concerns. Family members are usually familiar
with the idiosyncrasies that make us unique in
a way that professional health care providers
simply may not know. Though generally a remote
possibility, it may be prudent to name a personal
guardian and/or conservator in your documents
to eliminate questions regarding who you wish
to perform those functions should the become necessary.
When using a “living trust” as the
primary estate planning document, we recommend
including a “trust protector” provision.
The trust protector should have a deep knowledge
of your wishes, goals and desires, and is responsible
for seeing that those wishes are carried out.
He or she can assist successor trustees in administering
the trust as well as amending the trust to reflect
changes in laws that could affect how your wishes
are carried out. In some cases a trust protector
can change your trust after your death to carry
out your wishes. Additionally, a trust protector
can assist beneficiaries in preserving assets
and properly handling their inheritance.
Blended families present an additional set of
considerations. Often children of both spouses
in a second marriage are involved. Additionally,
many times there is an uneven level of wealth
between spouses that must be considered. One important
matter to consider is a residence that will pass
to the children of a deceased spouse and the “life
estate” of the surviving spouse with respect
to use of that property. Another issue involves
the availability of assets to a surviving spouse
who re-marries and how assets of the deceased
spouse are to be used and subsequently passed
to that deceased spouse’s ultimate beneficiaries
(most likely their children).
Where significant wealth exists, additional measures
to reduce estate and gift taxes must be considered.
A simple concept for reducing estate taxes is
to remove assets from any “incidence of
ownership” for tax purposes, often through
a trust or partnership arrangement. Customizing
the design of an estate plan through the use of
unique gifting and other transfer techniques can
accomplish transfer goals in the most tax-efficient
manner possible. Charitable remainder- and lead-trusts,
family foundations, irrevocable life insurance
trusts, personal residence trusts, generation–skipping
trusts and other “advanced” planning
techniques can be introduced into the planning
process to meet individual needs.
Business entity planning and exit strategy/transfer
planning are integral to a successful estate plan.
Determining and maintaining a defendable value
for your business can help reduce taxes and provide
for ease of transfer for your business interest
in either a planned or non-planning transition.
Important business planning documents include;
an appropriate entity structure, a funded buy-sell
agreement, and a salary continuation agreement.
Funding for business agreements often takes the
form of “buy-out” insurance contracts
or stipulated formulas for the purchase of ownership
interests. How you hold your business interest
can have a dramatic impact on your estate transfer
and tax planning. If family members are or will
be involved in your business, integrating your
personal and business planning can save money
in taxes both during and following your involvement
in the business.