Because you've worked hard to create a secure and comfortable
lifestyle for your family and loved ones, you'll want to ensure
that you have a sound financial plan that includes trust and estate
planning. With some forethought, you may be able to minimize gift
and estate taxes and preserve more of your assets for those you
A Needs Evaluation
One of the first steps you'll take in the estate planning
process is determining how much planning you'll need to undertake.
No two situations are alike. And even individuals who don't have a
great deal of wealth require some degree of planning. On the flip
side, those with substantial assets often require highly complex
Two key components of your initial needs evaluation are an
estate analysis and a settlement cost
analysis. The estate analysis includes an in-depth review
of your present estate-settlement arrangements. This estate
analysis will also disclose potential problems in your present plan
and provide facts upon which to base decisions concerning
alterations in your estate plan.
For example, you may believe that your current arrangements are
all taken care of in a will that leaves everything to your spouse.
However, if you've named anyone else as a beneficiary on
other documents -- life insurance policies, retirement or
pension plans, joint property deeds -- those instructions, not your
will, are going to govern the disposition of those assets. You want
to ensure that all your instructions work harmoniously to follow
your exact wishes. In addition, you may want to consider
alternative asset ownership arrangements under certain
An estate plan that leaves everything to a surviving spouse
enjoys the unlimited marital deduction against all estate taxes but
fails to take advantage of the decedent spouse's applicable
exclusion amounts against estate taxes under federal and state law.
This may result in a larger estate tax burden at the death of the
second spouse. Yet these are taxes that can potentially be
minimized with careful estate planning.
While your spouse will receive your estate free of estate taxes
if he or she is a U.S. citizen, anything your spouse receives above
his or her federal applicable exclusion amount may eventually be
subject to estate taxes upon his or her death.1 Many
states also have their own estate tax regimes and apply different
(lower) estate tax applicable exclusion amounts, which you will
need to consider with your estate planning professional.
An estate settlement cost analysis summarizes the costs of
various estate distribution arrangements. In estimating these
costs, the analysis tests the effectiveness of any proposed estate
plan arrangement by varying the estate arrangement, the inflation
and date of distribution assumptions, as well as specific personal
and charitable bequests.
Estate planning is very complex. And while a simple will may
adequately serve the estate planning needs of some people, you
should meet with a qualified legal advisor to be sure you are
developing a plan that is consistent with your objectives.
Finally, be sure to recognize that estate planning is also an
ongoing process that may require periodic review to ensure that
plans are in concert with your changing goals. In addition, because
estate planning often entails many facets of your personal
finances, it often involves the coordinated efforts of qualified
legal, tax, insurance, and financial professionals.
Estate Planning Checklist
Bring this checklist to a qualified legal professional to
discuss how to make your plan comprehensive and up to date.
Part 1 -- Communicating Your Wishes
- Do you have a will?
- Are you comfortable with the executor(s) and trustee(s) you
- Have you executed a living will or health care proxy in the
event of catastrophic illness or disability?
- Have you considered a living trust to avoid probate?
- If you have a living trust, have you titled your assets in the
name of the trust?
Part 2 -- Protecting Your Family
- Does your will name a guardian for your children if both you
and your spouse are deceased?
- If you want to limit your spouse's flexibility regarding the
inheritance, have you created a qualified terminable interest
property (QTIP) trust?
- Are you sure you have the right amount and type of life
insurance for survivor income, loan repayment, capital needs, and
all estate settlement expenses?
- Have you considered an irrevocable life insurance trust to
exclude the insurance proceeds from being taxed as part of your
- Have you considered creating trusts for family gift
Part 3 -- Reducing Your Taxes
- If you are married, are you taking full advantage of the
- Is your estate plan designed to take advantage of your
applicable exclusion amount?1
- Are you making gifts to family members that take advantage of
the $15,000 annual gift tax exclusion?
- Have you gifted assets with a strong probability of future
appreciation in order to maximize future estate tax savings?
- Have you considered charitable trusts that could provide you
with both estate and income tax benefits?
Part 4 -- Protecting Your Business
- If you own a business, do you have a management succession
- Do you have a buy/sell agreement for your family business
- Have you considered a gift program that involves your
family-owned business, especially in light of "estate freeze"
rules? (These rules were enacted by Congress to prevent people from
artificially freezing their estate values for tax purposes.)