I want to control my property while I am alive and well, care for myself and my loved ones if I become disabled, and be able to give what I have to whom I want, the way I want, when I want, and, if I can, I want to save every last tax dollar, attorney fee, and court cost possible.Now that’s a tall order. If limited exclusively to the management of assets and liabilities, estate planning would be a simple matter – but like so many things in life, it’s not. Here’s why.
Emotion, sentiment, and even history are complicating factors. For example, it is easy to suggest that a business owner and spouse sell their business and invest the proceeds, to enjoy a comfortable retirement of travel, leisure, and family, before ultimately passing their estates to loved ones. Make this identical suggestion to a surviving spouse, and memories of “sacrifice,”“hard work together,” and “the best years of our lives” will make this decision far more challenging.
Estate planning is further complicated, because some individuals equate it to a visit to the doctor: something to be avoided for as long as possible…potentially disastrous in both cases. Just as neglecting health needs can result in death or diminished quality of life, ignoring estate planning may create disastrous financial and family consequences for the individual and/or loved ones.
To better understand the importance of estate planning, let’s examine its underlying purposes, keeping in mind that a well-crafted plan includes two sets of primary objectives: 1) lifetime objectives and 2) death objectives.
Lifetime objectives include the following:
- Ensuring Replacement Income – Specifically, this means planning for replacement income in the event of retirement (planned) or disability (often unforeseen).
- Avoiding or Minimizing Income and Gift Taxes – Most individuals are properly focused on ensuring replacement income; however, wealthier people shouldn’t ignore potential tax consequences.
- Improving One’s Investment Package – The simple act of listing all of one’s assets and liabilities is often the first step toward a comprehensive review of his or her portfolio in years, and perhaps ever.
- Ensuring the Integrity of Healthcare Wishes – Laws, emotion, and family issues may potentially create barriers to the execution of your wishes as they relate to your personal care. Executing relevant documents in advance can remove those barriers.
- Providing for the Successful Continuation and Ultimate Disposition of a Business – For those who own one or more businesses, this is a particularly important consideration, because such entities profoundly affect a family’s financial well-being.
Death objectives include the following:
- Minimization of Death Taxes – Although no longer a concern for most individuals and families, some must be mindful in order to minimize taxes, thereby passing more to loved ones.
- Beyond-Death Taxes for Wealthier Clients – I like this quote, from an unknown source: “It is a curious thing that our obsession with saving taxes has blinded us to the more important aspects of estate planning and caused a serious misplacing of emphasis. When you have finished your work on earth and wish to provide for your loved ones after your death and avoid potential family squabbles over your assets, the most important matters facing you ought to be 1) the drafting of legal documents that will carefully set forth what you want to have happen with your assets, 2) the selection of an executor and/or trustee properly suited to the task, and 3) when there are minor children, the selection of proper guardians who have the necessary authority to act in the best interests of your children.”
- Ensuring That Beneficiaries Receive Their Intended Share of the Estate – This refers to the share that you intend for them to receive.
- Avoiding Family Disputes – This critical objective recognizes that otherwise harmonious family dynamics often degenerate into open warfare upon the death of a wealthy or dominant family member. Every family should be examined for this possibility, and when found to exist, corrective measures should be planned for.
- Support for Survivors in Time of Stress – Someone’s death is not the time to make important decisions about taxes, investments, business retention, and the disposition of personal assets. Proper planning ensures that these decisions are made in advance, without duress.
- Increasing the Size of One’s Estate for Survivors – Poor or absent planning can reduce the size of an estate in many ways, including expenses associated with the transfer process, delays, and, in some cases, taxes. Careful planning minimizes the effects of these forces, thereby increasing the size of one’s estate.
Clearly, estate planning is more than a matter of dollars and cents. As always, be sure to work with an attorney who is an experienced trust and estate specialist.