Estate Planning - Core Fundamentals

Our focus of this section is to inform the reader regarding areas of interest and education. Like all other sections of our site, our purpose is to give one a framework or backdrop to work from and to help stimulate thought and questions about your goals and values.

In embarking on designing your estate plan there are many details and options to consider. Once again, the options that are appropriate will be determined solely upon your circumstances, family and business, and your present values and goals. As discussed in the asset protection section, the estate planning should be well integrated with the asset protection strategies implemented. Ideally, both should be accomplished together. In larger estates, wealth and estate planning needs to be well thought out and assembled with the total advisory team. All advisors – financial consultant, attorney, CPA and other trusted advisors - can plan a significant role in the process.

Estate planning involves determining the appropriate titling or re-titling of assets in coordination with the legal documents. Yes it can be very technical; however the purpose of the estate plan is to develop a plan in order to determine the ‘exact’ disposition and future management of the estate assets based on your goals. Primarily, legal documents, such as trust documents, provide the direction, management and disposition of your estate assets.

What is included in your taxable estate?

In simple terms, any asset that you have an ownership or beneficial interest in will be included in your estate for transfer tax purposes. Intangible assets such as life insurance owned by either spouse generally will be included in the estate transferable value. Assets like qualified plan benefits, IRA’s, non qualified deferred compensation death benefits, life insurance and annuities – assets that most of the time pass by beneficiary arrangement – are included in the estate of the decedent.

When asset protection is desired, generally you are changing title to an asset or developing an entity to hold an asset (other than your home) which changes the ‘character’ of the asset. Changing the character of the asset may also change the value of the asset for transfer tax purposes. Such that, if you have access to assets or income but have limited control, one is able to apply a discount to the value of the asset for transfer tax purposes.

Business Entities

The family business is often the most significant financial asset and more than not the most important one. The family business can also be subject to the complexities of today’s family environment – those members involved and not involved in the business. The business continuation or disposition plan of the family enterprise needs to be carefully planned with the coordination of the overall estate plan. This can not be ignored.

Levels of Taxation

Property being transferred can be subject to different levels of taxation. For example, qualified plan and certain nonqualified compensation beneficial arrangements triggered at death will still be subject to income taxation at your death, let alone estate taxable as well. The non-Roth qualified plan, IRA, 403(b) type assets do not receive a step up in basis for income purposes (as other assets may, depending on state of domicile) and may remain income taxable to beneficiaries classified as ‘income in respect of a decedent’.

Regarding the estate tax, proper planning may lead to one utilizing the current 'exemption' dollar amount of estate value in order to escape tax liabilities that would otherwise be due based on the exemption amount. Currently congress is negotiating a major tax bill that may affect the estate tax exposure.

A word of caution: Most states decoupled their taxes or increased them. In the event the federal estate tax is repealed altogether, the states may replace the federal tax themselves in the wake of opportunity, meaning they will just raise their own taxes. Depending on the state you live in, total taxes can reach the 50% levels. Taxation has to be managed and not underestimated if your desire is to maximize wealth transfer to your heirs.

Your Personal Goals

What is needed? This really depends on your personal goals, your current assets, family circumstances, values you desire to transfer to the next generation and perhaps your vision for the future. The qualified estate planner you engage with needs to understand what you want to accomplish as well as what planning strategies will fit you best. Education for you, the client, in this area is key to helping what to decide on, as strategic planning alternatives are presented and considered. Some planning strategies can be straight forward, while others are more technically complex, given the number of steps to be completed for a particular strategy/technique.

In you are completing an asset protection plan simultaneously, then, all aspects need to be well integrated. As a potential high level consultant to you and your family, we know first hand that the planning process takes time and should involve a complete advisory collaborative effort. Our role will be to act, as our clients have come to experience, as the primary plan architect whom not only develops and outlines your alternatives, but more importantly, has a firm grasp on the financial economics of the estate and asset protection concerns. if the estate plan is top of mind for you, let us show you how we can help you be more confident in your ongoing implementation.

We will be adding more material here, so be sure to revisit the site.