While each person’s estate and wealth preservation plan should be tailored to their individual needs, a proper plan will generally include the following:
1) Proper Will for Each Spouse
Each spouse’s will should clearly direct who gets what and in what manner. The wills should also appoint an executor to handle the administration of the estate, trustees to administer any trusts created under the wills and, if necessary, guardians for minor children. A properly designed will should help avoid problems in the probate process and minimize estate tax liabilities. In the absence of wills, state intestacy laws will determine who receives your property and in what manner; and the probate court will determine who serves as executor, trustee and, most importantly, guardian for minor children.
2) Durable Power of Attorney for Each Spouse
This is a financial document that provides for alternate decision-making in the event of disability or incapacity and will generally appoint the spouse as attorney-in-fact to transact all financial affairs. A power of attorney should grant broad powers upon the attorney-in-fact, including gifting powers that enable the attorney-in-fact to continue any prior pattern of gifts to family members and charities. The purpose of the Durable Power of Attorney is to avoid the need for a guardianship proceeding, which can be prolonged and expensive, if a spouse becomes incompetent or incapacitated.
3) Health Care Power of Attorney for Each Spouse
A Health Care Power of Attorney is generally comprised of both a Health Care Proxy and a Living Will. It deals solely with health care matters and may provide a binding expression of the maker’s intent that life support be terminated when the maker is faced with an irreversible or terminal condition. This document may also be used as the vehicle to carry out an individual’s wishes regarding organ and tissue donation.
4) Adequate Life and Disability Insurance
5) Estate Tax Planning
Adequate life insurance coverage should be maintained in order to provide for payment of debts (i.e., a home mortgage), survivor income, children’s college education expenses, payment of burial and funeral expenses, estate taxes (if any), and other estate settlement costs. Maintaining adequate disability income insurance is also important to replace the earnings of a disabled spouse, whether such disability is permanent or only temporary. Although many individuals are covered by group disability policies maintained by their employer, these policies are often inadequate to provide the amount of disability income actually required.
For individuals with larger estates (i.e., estates in excess of $3 million), special planning measures should be taken in order to preserve wealth and reduce estate taxes. These strategies often entail:
Use of various trust strategies, such as:
- Wills with "By-Pass" Trusts
- Splitting assets between spouses to assure maximum use of exemption
- An annual gift program to heirs
- Family Gift Trust
- Irrevocable Life Insurance Trust
- Qualified Personal Residence Trust
- Marital Deduction (QTIP) Trust
- Charitable Remainder Trust
6) Charitable Planning
People often have favorite charities to which they make annual contributions during their lifetime. In such instances, consideration should be given to establishing a means (whether it be under a will, IRA beneficiary designation or otherwise) to provide a continuing endowment to these favored charities following an individual’s death. In addition to making a simple bequest to charity under a will, there are various other planning avenues by which an individual may achieve his or her charitable goals while obtaining both income and estate tax benefits.
In summary, by establishing a well thought-out estate and wealth preservation plan, one may avoid the need for "crisis management" and provide his or her family with a sense of financial security. It is, therefore, quite alarming that most adults do not have even the most basic estate planning documents or plans in place. And those who do often fail to keep them current.
• Wealth Preservation Planning
• Charitable Trusts
• Dynasty Trusts
• Family Dynamics