Estate Planning is a Process, not an Event

To many, estate planning is merely a “check list” item that provides for the orderly disposition of one’s assets at death.  However, it is so much more than that.

Estate planning includes a Last Will and Testament that appoints the appropriate person to handle the affairs of a decedent and the disposition of assets, but it is not enough.  One must also examine the specific ownership of assets and deal with appropriate beneficiary designations on non-probate assets, such as retirement accounts and life insurance.  Additionally, core estate planning documents include not only a Last Will and Testament, but also a General Power of Attorney that would “kick in” upon disability or incapacity, and a Health Care Directive, which appoints an agent to make medical care decisions on one’s behalf should they be incapable of making those decisions themselves, including decisions about life-sustaining or death-delaying medical treatment.

Estate planning also examines liquidity needs, succession planning matters for businesses and considerations for specific assets, such as second homes.  Estate planning can further include consideration to minimize the complexities and costs of probate.  Family objectives may include asset protection, tax savings, identifying family needs and encouraging family values.

• Phase one of estate planning is implementing and keeping current one’s core documents, i.e., will, general power of attorney and health care directive. Most states have implemented statutory powers of attorney and health care directives that should be part of everyone’s core documents.   The realities and idiosyncrasies of one’s Last Will and Testament can vary greatly, depending on the makeup of the family, the complexity of assets and the objectives of the testator.  There are simple wills that leave assets outright to beneficiaries and there are more complex wills that create trusts for beneficiaries in order to achieve additional objectives, such as tax savings and asset protection.

• Phase two of estate planning often involves looking at liquidity needs, determining appropriate beneficiary designations for life insurance and retirement plans, and examining succession planning for family businesses and specific assets.

• Phase three of estate planning often involves tax planning techniques, including gifting and strategic estate freezing techniques used to reduce estate taxes, and keep exposure to creditors and divorce to a minimum.

Estate planning usually involves the use of trusts.  Trusts are legal entities, generally created by a will or trust agreement, controlled by a trustee and created for the benefit of a beneficiary or beneficiaries.  There are all sorts of planning objectives that can be accomplished through the use of trusts.

Revocable trusts are often used in jurisdictions where the probate process is particularly onerous.  During life, the ownership of assets are transferred to the revocable trust, and the trust contains the dispositive provisions for assets rather than the traditional will.  At the testator’s death, his assets are not owned by his probate estate, rather by the trust, which continues to direct the disposition.  Hence the assets do not go through “probate.”  A revocable trust will not have any tax or asset protection characteristics since the trust can be modified or revoked by the grantor.

There are many types of irrevocable trusts that offer a variety of tax and asset protection advantages.  Examples of these types of trusts are irrevocable life insurance trusts, which are created to own and be beneficiaries of life insurance policies, in order to remove the death benefit from the taxable estate of the insured.  There are a variety of family trusts that can be designed to own assets, in order to remove them from the taxable estate of the grantor.

Whether we are talking about one’s core documents (will, power of attorney and health care directive), succession planning, or gifting strategies, estate planning is a process, not an event, for most families.  It is a building block process, dependent on a solid foundation of planning and continuous attention to details.  Make 2024 the year you give estate planning the energy that it deserves!