Estate Planning is Essential

By Brad Gross

Building and Maintaining an Estate

An estate should be managed so that it conserves assets. Once estate plans are completed, it is imperative that the plan be re-evaluated over time as circumstances change throughout a person's lifetime. Meeting regularly with a financial advisor can help with structuring a financial portfolio that minimizes risk while maximizing growth. Maintaining assets also requires preparing for unexpected cash outlays, which, without proper planning, might become obstacles to meeting long-term financial objectives.

Drafting a Last Will and Testament

Building and maintaining an estate would not be complete without providing direction for the distribution of property upon one's death. A will provides direction and prevents the property from passing to the decedent's heirs, according to the state intestacy laws, without regard to the decedent's wishes. In addition, a will also allows an executor to administer the estate as well as a guardian in the event that minor children are left without parental care. In the absence of a will, these important positions would be appointed by the state courts.

Avoiding Probate Without a Will

Although a will is an invaluable tool for distributing assets according to the decedent's wishes, the probate process can be tedious due to the lack of privacy and expense. One can avoid the probate process by utilizing a living trust, under which assets are managed and administered by an appointed trustee. Upon death, the trust document will determine the fate of the trust's assets, avoiding probate. Spouses may also avoid probate if their property is jointly owned with the right of survivorship. In this case, such property passes to the surviving spouse outside of probate. The most appropriate manner in which the ownership of assets is styled requires proper planning. Probate may also be avoided by owning assets that allow you to designate beneficiaries such as life insurance policies and certain retirement plan accounts.

Buy-Sell Agreements

A buy-sell agreement is a contract between a business owner and another party, such as a partner, key officer or descendent that allows the business owner to control the disposition of a business and raise cash for heirs. In a construction company, the owner, using a buy-sell agreement, can protect employees by selecting a competent successor to buy the business.

In addition to college or graduate school, these funds may be used to cover elementary through secondary school expenses. All earnings will be exempt from federal, state and local tax as long as the account is used to pay for qualified expenses. Certain out-of-pocket expenses can even come out of an ESA for children attending a public grade school.

Minimizing the Estate Tax

Minimizing the Estate Tax Estate planning also includes minimizing the estate tax by taking advantage of the estate and gift tax unified credit and/or the unlimited marital deduction. The estate tax credit, which is available to individuals, is applied to the amount of tax owed on the value of the estate. The maximum credit allowed last year was $345,800, which exempted up to $1 million in assets from estate and gift taxes. In addition to the estate and gift tax unified credit, the marital deduction allows a spouse to pass an unlimited amount of assets-tax free-to the surviving spouse at death. Although this technique simplifies the process of transferal, the tax consequences upon the death of the surviving spouse may outweigh any benefit, making other planning techniques more advantageous. Unique rules apply to non-U.S. citizens and non-U.S. residents.

Estate planning is an important process that should not be overlooked by any individual owning assets. If left neglected, the estate may not be distributed according to the decedent's wishes. Also, surviving family members could be left having to pay significant taxes out of the estate. The techniques mentioned above are just a few that may be beneficial when beginning the estate-planning process.