The primary goal of estate planning is to assure the transfer of a decedent’s property to the beneficiaries of his choice at the smallest possible financial and emotional cost. During the course of a lifetime various types of property are accumulated and many personal relationships are developed. The twin foundations of all estate plans are the assets comprising the estate and the characteristics of the intended beneficiaries.
Without estate planning, an estate owner may die without a will or with an out-of-date will. In addition, if the types of property comprising the estate and the form of ownership of estate assets have not been properly integrated with the will, the estate plan will fail to accomplish its purpose.
Some results of an unplanned estate include: the “wrong” beneficiaries inherit; the property is transferred in an unsuitable form, e.g., it passes outright to beneficiaries incapable of handling property, or it is tied-up in trust when the circumstances at the time of death warrant outright distribution; children inherit portions of a parent’s estate, leaving the surviving spouse with insufficient funds; unnecessarily high estate taxes diminish the estate; unnecessary estate administration expenses are incurred; and a lack of liquidity may result in the forced sale of estate assets to raise money to pay expenses and taxes. The final result is that the decedent’s survivors, in addition to the normal trauma caused by his death, often experience intra-family bitterness and reduced financial security.
In addition to the will itself, a well planned estate can achieve other significant benefits. An estate which contains a closely-held business provides a good illustration of the value of proper planning. Since the valuation of a small business is always difficult and usually leads to controversy and possible litigation with Internal Revenue Service, taxes and administration costs, (e.g., legal fees) can be saved if efforts to fix the value of the business are made prior to death e.g., providing for buy-out or stock redemption at a pre-determined price. Also, when a small business constitutes a major asset of an estate, it is necessary to provide for liquid funds with which to pay the estate’s taxes and administration expenses in order to avoid the necessity of a forced sale of the business itself. A simple method of providing such funds is through the purchase of adequate amounts of life insurance, on the estate owner’s life, the proceeds of which will be available to pay the estate’s expenses.
Consideration should also be given to the qualification of the estate for the payment of estate taxes in installments. Pre-death transfers of some of the estate owner’s non-business property to insure that the business will constitute the required percentage of the value of the estate to qualify for installment payments should be considered by the estate planner.
Finally, estate planning can result in reducing the potential income taxes of the estate owner and his beneficiaries and the estate tax itself. Tax saving involves informed decisions on such
issues as who should own property and what property to own, whether it should be owned jointly or separately, whether and when lifetime transfers should be made, whether bequests should be outright or in trust, and whether the fullest allowable marital deduction should be taken and how to be sure it will be allowed.
The successful achievement of the results which estate planning is designed to accomplish depends completely upon the willingness of the estate owner to provide his advisor with honest and complete information as to his assets and his intended beneficiaries. In order to convince a client to spend the time, effort and money required to obtain a properly planned estate, the estate planner must be able to 1) describe the benefits to be attained and 2) design an effective plan. This service intends to provide the answers to the “whys” and “hows” of estate planning and administration.