Estate Planning is the process of anticipating and arranging for the disposal of an estate. At StateTrust , we seek to eliminate uncertainties over the administration of the disposition process of assets (probate) and maximize the value of your estate by reducing taxes and other expenses. Our Estate Planning also seeks to give you the ability to transfer property and to decide who the beneficiaries should be, with a minimal loss of value and reducing the costs and waiting time of probate and other legal proceedings. Probate is a court proceeding that occurs when a person dies without leaving a will, or what is commonly referred to as intestate. The state steps in and appoints an administrator or executor to handle all affairs relating to the estate, and distributes and transfers property, according to the laws of that particular jurisdiction.
Probate is a lengthy, expensive, and time-consuming process. While the administrator/executor sorts out how to distribute the estate, your family and any other named beneficiaries will not be able to make use of any assets that you have left behind for them. Any property in the individual's name, along with tenancies in common, life insurance policies, and any other assets and liabilities are all considered part of the probate estate.
You Create an Estate Plan to:
- Provide enough liquid assets for your estate to cover its expenditures (including funeral costs).
- Steer clear of probate which can be lengthy, expensive, and becomes a matter of public record.
- Take care of the special needs of your heirs, especially those that are elderly or disabled.
- Be sure that your heirs and beneficiaries receive your assets as per your wishes.
- Lower expenses that could decrease the value of your estate.
- Ensure enough capital and income for the estate to meet preassigned goals.
| Estate Planning Tools | |
|---|---|
| Wills |  |
| Trusts | |
| Life Insurance | |
An Estate may include any combination of the following assets:
| Asset Type | Asset Description |
|---|---|
| Real Property | Real Estate |
| Land | |
| Buildings | |
| Personal Property (Intangible Assets) |
Stocks/Bonds |
| Life Insurance | |
| Cash & Certificates of Deposit (CDs) | |
| Personal Property (Tangible Assets) |
Jewelry |
| Cars | |
| Boats | |
| Works of Art | |
| Personal Effects | |
| Interests in Partnerships /Sole Proprietorships | |
| Furniture |
By creating an estate plan, you are aiming to preserve the maximum amount of wealth possible for your intended beneficiaries. Our estate planning process involves the following: the will, trust(s), beneficiary designation, powers of appointment, property ownership (joint tenancy with rights of survivorship, tenancy in common and tenancy by the entirety), gift, and powers of attorney (specifically the durable financial and the medical power of attorney).
Estate planning takes into consideration a wide range of unforeseen events, such as disability, untimely death, taxes, legal challenges, probate and others, which could ultimately affect the size and transfer of your estate.
The estate planning process will work to fulfill a variety of legal, financial and personal goals. The estate plan carries out your wishes through the implementation of legal documents that specify your instructions and wishes regarding your estate (and in some cases, what will happen to you if you become incapacitated to make decisions).
| Estate Planning Tools | |
|---|---|
| Wills | |
| Trusts | |
| Life Insurance | |
An important reason why estate planning is essential is because the state has the superior right to its citizen's property (sovereign right) and to take private property and use it for public purposes (eminent domain). These state rights make it imperative for you to take steps to protect your property. If at the time of your death, you do not have a will or any other estate planning tool, the state has a right to take your property and dispose of it as it sees fit.
Another reason to make sure you have an efficient estate plan is to avoid costly estate transfers. Much is involved in transferring property from your name to that of your beneficiaries: attorney's fees, probate, debts, and estate taxes. Estate transfers can be very complex. Estate planning aims to reduce these costs as well as to make the transfer of your estate easier.
Marriage and Estate Planning
If you are married, you will need to establish the divison of your estate between you and your spouse. Laws governing marriage property may vary from state to state – common-law states differ from community property states. In community property states, all property acquired during the marriage is considered owned equally by husband and wife. In common-law states, if you have the title to your house in your name alone, it is considered 100% yours, making it easy for you to give that house to whomever you choose. If you leave everything to your spouse, it will not be a problem. However, if you have multiple beneficiaries, you will have to specify which property is yours. An irrevocable life insurance trust lets proceeds pass through the trust to the named beneficiary free of taxes, once the insured passes away. Also the policy value is not added to the estate of the insured.
The Estate Tax Marital Deduction
You can transfer unlimited amounts of property to a surviving spouse tax-free. This can be done during your lifetime or upon the death of one spouse and no federal gift/estate taxes will be imposed. Keep in mind that unless the property is sold or subject to gift tax, it will eventually be taxed in the estate of the surviving spouse.
Ways to Transfer Property
- Outright gift to your spouse.
- Jointly held property.
- Through life insurance agreements.
- Through various types of trusts.
- Through a will.
When administering an estate, there are several expenses that result in reducing or shrinking the total value of the estate. These include:
- Estate Liability Factor : Estate obligations which must be met before the estate can be distributed to its beneficiaries. Liabilities include: debts, funeral expenses, estate administration costs and any estate taxes.
- Depreciation Factor : Any costs that result from the estate owner's death, such as a decline in business value due to the loss of the deceased's management skills.
- Liquidation Factor : Any costs or expenses associated with the forced sale of estate property. The sale of property may be required for cash liquidity purposes -- for instance, to pay funeral or estate taxes -- in case the estate does not have the liquidity to cover those costs.
Using Life Insurance in Estate Planning
Life insurance can play an important role in your estate plan. The life insurance policy itself can create an immediate estate. You can make your estate the beneficiary of your life insurance policy – making it easier to use the life insurance benefits to cover the costs and estate taxes that your estate will incur upon your death. The policy also provides assets to your beneficiaries. Life insurance is in most cases tax-free, a savings that helps preserve your total wealth for your beneficiaries (the main goal of estate planning).
Making the Executor's Job Easier
An executor will take care of your estate's affairs upon your death. It is not pleasant to think about one's death, but some organization and a clear discussion with you executor now will make it easier for your wishes to be fulfilled in the future. The first step in the process is for you to organize the following information:
- Insurance policies.
- Important documents (wills, deeds, etc.).
- Pensions and retirement funds.
- Bank accounts.
- Stocks and bonds.
- Items in safekeeping.
- Family heirlooms and other irreplaceable items.
- Funeral arrangements.
- Partnership documentation & other assets
The second step is to make this information accessible to your executor – it does not have to be formalized. You could just label a folder as "information for my executor”, and include your lists and other information, and put it in a safe location, such as a fireproof file or a safe. However, you must let the executor know exactly where this master list is located. You may also wish to create a document that will set out instructions regarding your funeral and include it in the above file.
The third step is to discuss this information with close family members, such as your spouse or children. They should also know the location of your executor's file and be familiar with your post-mortem wishes.
Children and Estate Planning
Children are often the main beneficiaries of an estate. The Uniform Transfer to Minors Act (UTMA) states:
- That lifetime transfer of property and virtually any other assets to a custodian (you or someone you appoint) for the benefit of a minor are allowed.
- Custodians are considered fiduciaries and so are charged with the careful investing of assets.
- Testamentary transfers that you create in your will and lifetime irrevocable transfers are both acceptable.
- Once the child attains the age of majority in their home state (age 18 or 21 usually, with some states extending the age up to 25), they receive legal and equitable title to real estate and other assets.
If your children are of majority age (see definition of majority age according to your home state) your estate transfer may be straightforward. However, if your children are minors, there are several factors you will have to consider. In some cases, your spouse will be the main beneficiary, and he or she will look after the children. You should arrange for the management of your property for the benefit of minor children, because if you fail to do so, the probate court may assign a property guardian. In order to do so, you have several options:
- You may name a custodian under the Uniform Transfers to Minors Act (UTMA).
- You may set up a trust for your children (either for each individual child or as a group), and the trustee will handle the property for them until they reach a specified age.
- You can name a personal guardian in your will. The guardian should be someone you trust enough to make decisions in the best interest of your children, and to take care of them as you would have.
Reviewing and Updating your Estate Plan
A periodic review of your estate plan is highly recommended since this will help you determine whether changes might be needed. The principal question to ask yourself is:
- Have there been any major changes in my life or property? If the answer is yes, you might have to change your estate plan.
These life changes can include: a change in marital status or the birth of a child, all of which may affect your beneficiaries. You may change your mind about who will receive what portion of your estate. You may acquire new property (a new home) or dispose of some property (sell substantial business interests). You may decide to relocate and your new home state may have different estate laws than your previous address. The best way to avoid being caught unprepared is to consider how any changes affect your total estate, and make the appropriate revisions to your estate documents.
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