Sushi Money

When we hear the phrase “Estate Planning” we often think it’s more of a concern for the wealthy… or something we don’t have to worry about for many years.  But realistically, estate planning is a collective function that we should consider throughout our lives.  After all, we don’t know “when” our number is up…    I’ve heard stories of individuals taking out insurance policies, and within days of the policy being active, or just after it has become active, they die in a car accident or meet a similar fate.  In either case, estate planning takes on new relevance for the families and survivors.  So does the need for insurance!

What concerns are paramount for estate planning?  For most of us, a Will is the primary requirement.  The will should be pertinent to where you live, i.e. your domicile or State of permanent residence.  This is usually where you have your driver’s license, vote, pay taxes, etc.  If one dies without a will, then the state considers them to be “intestate” or “dying without a will or testament.”  What does that do?  I means the State will administer probate without regard to your final wishes, and distribute your estate according to State law, which means family or relatives will receive whatever the State’s laws say they should receive.  What if you have no living relatives?  Then you may have given the State everything you have by default.  A will is important… it helps decide “who gets what” and how things should be distributed.  Along with a will, could be a Letter of Final Instruction where you may make “bequests” of money or property, state your burial wishes and say anything else you think appropriate at that time to friends and relatives.  Not a bad idea.

What about Probate?  Well Probate is the legal administrative function of the courts in a given State to certify a Will and distribute assets.  Sometimes this can be a lengthy process, and expensive.  Many people go to great lengths to avoid probate because they want their estate to be settled quickly and with the least hassle.  A Living Trust can be used avoid probate by transferring assets into the trust. 

How else can we structure our accounts and property in a simple manner?  Lots of folks like to use “Pay on Death” or “POD” for bank accounts, and “Transfer on Death” or “TOD” for other accounts like brokerage or mutual fund accounts.  This enables the account to transfer immediately to the named individual(s) that are cited.  Insurance is not a problem, and avoids probate because it has a beneficiary designation.  IRA’s can also have a beneficiary designation, which is an excellent idea.  When was the last time you updated your beneficiary designations on your IRA or insurance policies?   In some states you can even avoid probate through the use of ”Transfer on Death” for automobiles and “Beneficiary Deeds” for real estate.

Sometimes people decide just to put a relative or friend as “Joint” on their account so they don’t have to worry about it… if they die, the account is already in the other person’s name and “Joint with Survivorship” applies, meaning the survivor is the full owner of the account.  That can be problematic though, especially for larger values of money or property.  If you make someone, outside of marriage, a Joint account holder, you may be making a taxable gift to them.  Also, once someone becomes a Joint account holder or owner, that account or property can be subject to the reach of their creditors.  Choose carefully if you are doing this.   Problems can be far reaching… consider the married couple with children.  If they accumulate substantial assets during marriage and one spouse dies, let’s say the other spouse inherits and receives all the assets from the marriage.  Naturally this couple wanted to provide for their children one day, and worked hard to get there.  Now lets say the surviving spouse re-marries, and re-titles everything as “Joint” with the new spouse.  Okay… that’s not abnormal.  They have children as well, but one day the original surviving spouse passes away, leaving everything to the spouse from the second marriage.  That may be fine, or it may not…  what if that spouse decides not to provide for or give anything to the original children, especially when they are older?  In some cases, original family members may be left out of any possible inheritance or assistance from enormous assets that originally came from their parents!  That’s one example of why estate planning is important, especially as we accrue assets and property throughout our lives.  There are many other issues such as divorce and taxation that are important to consider.

More formally, estate planning may involve the Financial Planner, Estate Planning Attorney, CPA and Trust Officer if there is one.  The client is kind of like the Director, and the professionals fulfill the direction of the client.  Often, the Financial Planner is the person the client is seeing for guidance, and will refer the client to other professionals as required.  A good Financial Planner can help look at the whole picture of your estate and financial matters, providing a holistic plan that meets both your financial goals during life and in retirement, as well as assisting with planning for after your death.

Some of the critical functions of estate planning involve tax considerations, trust integration, beneficiary structure and how insurance can be used to help survivors, as well as offset estate taxation upon your death.    For 2007 the Unified Credit for estate and gift taxation provides a $2,000,000 exemption.  That means most of us do not have to worry about estate taxes.  But often we are surprised at how things add up.  When you consider your home and personal property, insurance proceeds, investment real estate, stocks, bonds, etc. it can add up quickly pushing your Gross Estate pretty high.   If you are anywhere close to this number, it may be time to see your Financial Planner.  Of course seeing a Financial Planner is a pretty good idea anyway. It’s never too late to start!

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