Preserve Your Estate

Steps to Estate Preservation

The following outline references some of the planning techniques that you should consider, as appropriate, with respect to your estate planning.

This outline includes some of the more commonly utilized techniques and does not incorporate all available planning strategies and techniques. It is intended to be a reference to assist you in determining if you have properly addressed your estate planning needs.

Each individual circumstance may require utilization of other techniques. In every instance you should be sure to consult a qualified advisor such as a certified estate planning attorney to assist with the evaluation of your planning goals, alternatives and the implementation of your planning.

Fundamental PlanningTechniques

  1. Establish a Living Will with Health Care Power of Attorney.
  2. Establish a Durable Power of Attorney for legal, business and financial decisions.
  3. Establish both a Revocable (Living) Trust and a pourover Will. To avoid probate, for privacy and as otherwise appropriate, transfer ownership of property to your Revocable Trust.
  4. Execute proper Beneficiary Designations on life insurance policies and for annuities.
  5. Coordinate your basic estate planning with your IRA and qualified retirement plans (e.g., 401(k), Pension, Profit Sharing, Savings, etc.). Execute proper Beneficiary Designations on all IRAs and for all qualified retirement plans in which you have an account or other interest.
  6. If married, be sure you and your spouse each use your separate $1,500,000 federal estate tax exemption amounts. (These increase to $2,000,000 in 2006 and $3,500,000 in 2009. Note that the estate tax is scheduled for repeal in 2010 and in 2011 it is reinstated with $1,000,000 exemption for each person). Note that many states (Such as Tennessee, which currently has “only” an $850,000 per person exemption for inheritance tax purposes) have estate or inheritance taxes that employ differing exemption amounts. Become familiar with possible strategic uses of these tax exemptions. Review your existing planning in light of the new rules and uncertainties involved in the future.
  7. If married and spouses have separate children from prior marriages, make sure your planning properly addresses your “blended family” circumstance.

Wills and Trusts To Plan Your Estate

Planning is a part of nearly everything we do in life. It’s even a part of dying. How will you preserve your assets from estate taxes and probate fees? How will you ensure distribution according to your wishes? Who will make financial and medical decisions in the event of your incapacity?

By taking steps in advance, you have a greater say in how these questions are answered. And isn’t that how it should be?

Wills Essential to Smooth Estate Disbursement

Wills and Trusts

Wills and trusts are two of the most popular estate planning tools. Both allow you to spell out how you would like your property to be distributed, but they also go far beyond that.

Just about everyone needs a will. Besides enabling you to determine the distribution of your property, a will gives you the opportunity to nominate your executor and guardians for your minor children. If you fail to make such designations through your will, the decisions will probably be left to the courts. Bear in mind that property distributed through your will is subject to probate, which can be a time-consuming and costly process.

Trusts differ from wills in that they are actual legal entities. Like a will, trusts spell out how you want your property distributed. Trusts let you customize the distribution of your estate with the added advantages of property management and probate avoidance.

Wills and trusts are not mutually exclusive. While not everyone with a will needs a trust, all those with trusts should have a will as well.

Planning for the Possibility of Incapacitation

Power of Attorney Key for Estate

Incapacity poses almost as much of a threat to your financial well-being as death does. Fortunately, there are tools that can help you cope with this threat.

A durable power of attorney is a legal agreement that avoids the need for a conservatorship and enables you to designate who will make your legal and financial decisions if you become incapacitated. Unlike the standard power of attorney, durable powers remain valid if you become incapacitated.

Health Care Proxies and Living Wills

Similar to the durable power of attorney, a health care proxy is a document in which you designate someone to make your health care decisions for you if you are incapacitated. The person you designate can generally make decisions regarding medical facilities, medical treatments, surgery, and a variety of other health care issues. Much like the durable power of attorney, the health care proxy involves some important decisions. Take the utmost care when choosing who will make them.

A related document, the living will, also known as a directive to physicians or a health care directive, spells out the kinds of life-sustaining treatment you will permit in the event of your incapacity. The directive creates an agreement between you and the attending physician. The decision for or against life support is one that only you can make. That makes the living will a valuable estate planning tool. And you may use a living will in conjunction with a durable health care power of attorney. Bear in mind that laws governing the recognition and treatment of living wills may vary from state to state.

Estate Planning Tip

Keep all your important financial and legal information in a central file for your executor. Be sure to include:

  • letters of last instructions
  • medical records
  • bank/brokerage statements
  • income and gift tax returns
  • insurance policies
  • titles and deeds
  • will and trust documents

Planning Your Estate with Life Insurance

Building an estate can take years of diligent saving and investing. Once you have built up an estate, you’ll want to make sure that you preserve its value for your heirs. You can also add to or create a valuable estate by using life insurance.

Premature death can result in financial difficulties for your survivors. By using life insurance to protect against this outcome, you can rest assured that your heirs will be cared for financially in your absence.

If you wish, you can also ensure that other financial goals are achieved. Because the premature death of a breadwinner could make college savings or mortgage repayment impossible, steps should be taken to prepare for these possibilities. Life insurance provides a cost-effective way to guard against the threat of interrupted financial goals.

A Case Study:

The following example illustrates the concept of estate creation.

Paul Pringle, a 40-year-old computer programmer, would like to begin a savings program. He and his wife, Pam, have two children, ages 10 and 8. He feels he can afford to save about $3,000 per year.

Estate Planning Using an IRA vs. Life Insurance

Among his options, he could choose to invest in a traditional IRA. His contributions would be fully deductible and would grow on a tax-deferred basis. This would help provide a respectable retirement nest egg. However, it would not be accessible for most other purposes without penalty before he turns 59 ½.

For the same annual amount, he could choose to purchase a whole life policy. He could choose a fixed premium, and his cash value would be allowed to grow tax-free just like in the IRA. Unlike IRA contributions, however, whole life policy contributions are generally not tax deductible.

Paul would have penalty-free access to the cash value through policy loans or withdrawals. And in the event of Paul’s premature death, his family would receive the policy proceeds free of income tax. The proceeds would help to maintain his family’s standard of living, and it could ensure a college education for both of their children.

Financial Leverage

In the unfortunate event that Paul dies prematurely, his policy would generate a significant amount of wealth. For a potentially low premium investment, Paul can create an estate that might take 20 to 30 years to accumulate in an IRA.

Life Insurance in Estate Planning: A Clear Advantage

The security provided by life insurance, combined with the opportunity to create an estate, makes this choice a logical one for many families. Consult an advisor to see how you can achieve financial security for your family.