|
Estate Planning
By Eiko Itoh
What is Estate Planning?
“Estate planning” is a broad term often used
to describe the process of putting legal documents in place to arrange one’s
personal and financial affairs, both during life and after death. The goals of estate planning often include:
·
Providing
for management of one’s assets during life
·
Planning
for incapacity
·
Providing
for distribution of assets to loved ones after death
·
Minimizing
or deferring different types of taxes
Without
an estate plan, it often becomes necessary for many of these personal
decisions to be made by a court of law or under default laws.
A common misconception is that estate planning
is only necessary for the extremely wealthy.
Many people are motivated to do estate planning in order to designate
guardians for their minor children and to provide for trusts to be
established for their children upon their deaths. Without such arrangements, a costly and inconvenient
court procedure may need to take place to appoint a guardian who will care
for the children and manage the children’s inheritance. Other people may wish avoid probate or to
do planning for beneficiaries who may not be their heirs under the default
intestacy laws, such as parents, siblings, domestic partners, friends, or
charities, or to disinherit a person who would be an heir under intestacy
laws.
Basic Estate Planning
·
Planning for Death. At a
minimum, basic estate planning involves executing a Will containing
provisions that set forth how a person’s assets should be distributed after
that person’s death. Living trusts are
also used to provide for the disposition of one’s assets at death and are popular
because they can also provide for management of one’s assets during lifetime
and, if used properly, can avoid probate after death. For more information regarding living
trusts and probate, see Living Trusts.
·
Planning for Incapacity. Planning for incapacity can be
accomplished through the use of living trusts, Durable Powers of Attorney,
and Advance Health Care Directives. A
living trust can designate successor Trustees to manage the trust’s assets
for your benefit if you become incapacitated.
A Durable Power of Attorney allows an agent to deal with assets not
held in a living trust and to sign documents and provide consent, approval
and other types of authorizations on your behalf when you are, for any
reason, unable to do so personally. An
Advance Health Care Directive allows an agent to make health care decisions
for you, and you may also specify the type of health care measures you want
taken, organ donation instructions, and burial wishes.
·
Tax Planning. Tax planning is
another integral component of estate planning. Through various methods of transferring
assets both during life and at death, gift taxes, estate taxes,
generation-skipping transfer taxes and capital gains taxes can often be
reduced or deferred.
A
comprehensive basic estate plan will typically include the following:
- A Will
(including nominations of guardians for minor children, if applicable)
- Living trust
- General
assignment document assigning assets to a living trust
- Durable power
of attorney for financial management and personal care
- Advance Health
Care Directive
- HIPAA medical
release
- Trust
certification
Sophisticated Estate Planning
Many clients require or desire a more complex
estate plan to address various financial, tax and family issues. Such sophisticated estate planning may
include:
- Business
succession planning
- Planning for
non-U.S. citizen spouses
- Irrevocable
trusts for children
- Generation-skipping
transfer tax planning
- Special needs
trusts
- Life insurance
trusts
- Leveraged gift
planning (such as a Qualified Personal Residence Trust or Grantor
Retained Annuity Trust)
- Charitable
trusts
A good estate plan will be customized to take
into account a person’s assets and liabilities, personal situation, family
situation, and the person’s concerns and goals. As a result of this process, the estate
planning attorney often becomes a trusted and knowledgeable advisor who can
help the client’s chosen fiduciaries properly administer and distribute the
client’s estate after the client’s death.
This publication is of general applicability and not specific to any
set of facts. Thus, it should not be
relied upon for any specific case or matter without further discussion. No attorney-client relationship is formed
as a result of your reading or replying to this publication, which is not
intended to provide legal advice on any specific matter, but rather to
provide insight into current developments and issues.
Internal Revenue Service Circular 230 Disclosure. Please note that any
discussion of or advice regarding United States tax matters contained herein
(including any attachments hereto) does not meet the requirements necessary
to be a "covered opinion" as defined in Internal Revenue Service
Circular 230, and therefore, is not intended or written to be relied upon or
used and cannot be relied upon or used for the purpose of avoiding federal
tax penalties that may be imposed or for the purpose of promoting, marketing,
or recommending any tax-related matters or advice to another party.
|