Estate Planning

The Importance of Estate Planning

Note: This website may contain information that could carry legal, accounting, or tax implications. None of the information is intended to provide legal, accounting, or tax advice. Please consider consulting a competent attorney, tax advisor, or accountant for this information.

Your entire lifetime is spent earning money and accumulating wealth. If you accumulate substantial wealth, those you leave behind will be left quite unhappy if you pass away without proper estate planning. Your estate plan allows you to decide for yourself who will receive which assets when you pass on. It also gives you the opportunity to protect those you love from expenses you may not anticipate, such as debts, administrative fees, and taxes. If your estate does not have enough cash to pay these expenses, your heirs will have to sell other assets to cover them. Not only could they lose beloved property, like the family home, but they could also lose much of the value of these assets, because estate sales often bring in only a fraction of what the asset is truly worth. Estate plans exist because people care about the ones they leave behind.

When working through estate planning goals, you must consider the following:

• Wills
• Executors
• Estate Taxes
• Trusts
• Life Insurance
• And Much More


Wills are the bare minimum that someone who cares about the division of their assets needs to have. Your current and valid will needs to include:

• A short description of your assets.
• A description of the way in which you want to have your assets distributed to your heirs.
• A guardian named for your children.
• An executor named for your will.

Wills are not complicated, but they should be done through a qualified attorney. Some courts will except a simple handwritten will that does not utilize legal counsel, and some states allow for oral wills.

Once the estate owner passes away, the will becomes a public document that is entered into the court system to instruct the court of your wishes for your estate. It can be contested, and the courts have the responsibility to determine whether or not they feel the will is valid. By using an attorney to create your will, you can avoid having your wishes undermined through your will being contested.

When someone passes away, the will is brought before the courts, even if it is not contested. This is called probate. It can take anywhere from 9 months to 2 years, and even longer. It can cost up to 2 percent and 5 percent of the entire estate. Some estates with enough value are subject to estate taxes, and wills do not provide protection from this cost.


When someone passes away who has property with real value, it is usually necessary to appoint someone to administer the estate and oversee the distribution of the assets. This can be an individual, usually someone who is close to the deceased, or it could be a bank or a trust. This entity acts for the deceased and is called the personal representative. The personal representative is known as the executor when he or she is named in the will and the courts accept the will as valid.

The executor, in the role of administrator of the estate, has the following responsibilities:

• Must contact the cemetery, clergy, and funeral director to make arrangements for the funeral and burial.
• Must inform friends, employers, relatives, the post office, insurance agents, civic organizations, veteran organizations, attorneys, accountants, and newspapers of the individual’s death.
• Collect the documents and other important information about the deceased, such as:
o Will
o Death certificate
o Birth certificate
o Marriage certificate
o Social Security number
o Citizenship papers
o Insurance policies
o Bank accounts
o Leases
o Deeds
o Car titles
o Income tax returns
o Veteran Discharge papers
o Disability claims
o Unpaid bills
o Property tax bills
o Credit card information.

• May need to hire lawyers, appraisers, and accountants depending on the complexity of the estate. If a business is involved, the executor will be involved in hiring the people needed to run the business.
• Will file tax returns and pay estate, federal, and state taxes for the estate, and pay debts and expenses of the deceased and his or her estate.
• Needs to distribute assets according to the guidelines in the will.


Probate is the term used to describe a legal process wherein your executor goes before the court to do the following:

• Identify the property owned by the estate
• Have all assets appraised
• Pay debts and taxes on behalf of the estate
• Prove the validity of the will
• Distribute assets as directed by the will

Probate has many problems, such as:

• Probate takes a lot of time. It can take two or more years if the courts are busy, and your heirs will wait for their assets during this time.
• Probate is expensive. Non-cash assets, like real property, valuable collections, or bonds, often must be sold to pay probate costs. Selling these assets adds to the cost through appraisal fees, and often assets you intended for your heirs will end up sold. In many cases the assets are sold below market value.
• Probate can occur in multiple states. If your estate has assets in more than one state, it will need to go through probate in each state.

The good news is that you can avoid probate through proper estate planning.

• If an asset passes automatically under joint ownership, such as when a business passes to the business partner or a home passes to the surviving spouse, it does not fall into probate court.
• If the estate’s only asset is a life insurance policy payable to a beneficiary, probate may not occur.
• If the beneficiary designated for a particular asset is an IRA or employee benefit such as a pension plan, that asset does not fall into probate.
• Placing assets in a trust usually protects them from probate, because the assets are payable to named beneficiaries.

Estate Taxes

In 1916, Congress adopted the federal estate tax. This tax was placed on the right to transfer property after a death. In 1976 the Tax Reform Act revised this estate tax. Now it is based on the value of the property and the rights to property that was possessed by a decedent upon his or her death, or those transferred to by gift while the decedent was alive.

There are some types of property excluded from estate taxes. These are:

• Unlimited Martial Deduction: Any property transferred at death from one spouse to the surviving spouse cannot be taxed.
• Annual Exclusion: An individual can give an unlimited number of gifts of $14,000 per entity per year from the estate without paying this estate transfer tax.
• Unified (Lifetime) Credit: Each individual has a lifetime credit. Estates with values at or below this level will not be taxed. Under the Economic Growth and Tax Relief Reconciliation Act of 2001, which President Bush signed on June 7, estate taxes were repealed for one year, followed by increasing unified credits and decreasing top estate taxes. In 2010, President Obama extended these rates for two years, increasing the limit to $5 million per individual and $10 million per married couple. As of 2015 these totals are $5.43 million per individual.


A trust allows the owner of an estate to set up a holding that allows another entity, the trustee, to manage his or her property, holding it for another person, known as the beneficiary. In a trust, the original property owner is called the grantor. A Living Trust, called that because it is created when you are still living, allows you to avoid probate costs when you do pass away. Often, the grantors are also the trustees of the trust.

Most assets can be placed into trusts, including bank accounts, real estate, personal property, bonds, stocks, and life insurance. Establishing the trust allows the grantor to place other assets into the trust easily. All it takes is changing the title or name on the asset. When set up properly, trusts leave full control of the property in the hands of the grantor during his or her lifetime.

Trusts carry many benefits, including:

• Trusts allow the estate to avoid probate. The trust is recognized by the courts as a separate legal entity, so the “owner” of the assets in the eyes of the courts does not pass away when the grantor does. Distributions are then made by the trustee to the beneficiaries named on the trust without the involvements of the court.
• Trusts keep the estate’s details private, rather than releasing them in a public document.
• Living trusts set up a successor trustee if the grantor is named as the trustee when it is established. The successor trustee steps in when the grantor passes away or becomes otherwise incapacitated.
• Contesting a living trust is difficult.
• Living trusts give the grantors, usually the husband and wife in a family, control over their assets throughout their lifetime, but makes provisions for control when they are no longer competent to do so, even if they are sill living.
• “A-B Provisions” in living trusts allow married couples to double the standard estate tax deduction.

Life Insurance

Life insurance provides cash to your heirs that they can use to pay fees and taxes or to cover living expenses after you pass away. Purchasing life insurance allows you to distribute some of your assets easily. These proceeds are passed on to the beneficiary income tax free. They do add to the total value of the estate, and will be subject to estate taxes if you have more than the exemption amount. There are two ways to avoid this potential:

• Having the children of the insured named as the owner of the policy.
• Creating an irrevocable life insurance trust funded by the life insurance policy. This prohibits the insured individual, the grantor of the trust, from having rights or powers over the trust. In other words, the grantor cannot have any ownership over the policy.