Who should have an estate plan?

Nearly everyone should have an estate plan, though many do not. You should have an estate plan if:

• (1) you are the parent of minor children
• (2) you have property that is important to you
• (3) you care about your health care treatment

If none of these apply to you, then you probably do not need an estate plan, but if even one does and you do not have an estate plan, then you should contact an estate planner and begin establishing your estate plan as soon as possible.

What is estate planning?

The first thing to understand is that estate planning is more than simply setting up a basic will or trust, though this is part of it.  Estate planning is a process that provides a comprehensive plan regarding your finances, your family, and the future, based upon your personal wishes.  As such, it involves working with a skilled estate planner and thoroughly considering the possibilities, alternatives, and most legally effective way in which to implenment your specific wishes, should something happens to you or your loved ones. One of the main effects of estate planning is to minimize the impact of potential taxes and fees on your assets. Estate planning also establishes contingency planning, to ensure that your wishes regarding health care treatment are followed.

There are two sides to estate planning: personal and financial. An effective estate plan coordinates all aspects of your financial life; that is, what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401(K) plan), and other assets, in the event you became disabled or die. An effective; estate plan will also include directions to carry out your wishes regarding health care matters, so that if you are ever unable to give the directives yourself, a person that you trust and chose yourself would do that for you, and know when you would want them to authorize heroic measures and when you would prefer they pull the plug.

What are the most common estate planning documents?

The following documents are commonly used in the estate planning process:

• (1) A Will, more formally referred to as a "Last Will and Testament," to transfer assets that you hold in your name to the people and/or organizations that you want to have them. A Will also usually names someone you chose to be your Personal Representative (or "Executor") to carry out your instructions and also names a Guardian, if you have minor children. A Will has no force during your life; it only becomes effective upon your death and after it is admitted to probate.
• (2) A "Durable Power of Attorney for Health Care" or Health Care Proxy is a document that appoints a person you select to make choices regarding your health care treatment, in the event that you are unable to provide "informed consent."
• (3) A "Living Will" or "Directive to Physicians" is an advance directive that provides doctors and hospitals with your instructions regarding the nature and degree of care you want, in the event that you suffer permanent incapacity, such as an irreversible coma.
• (4) A "Durable Power of Attorney for Property" appoints a person you chose to act on your behalf, handling financial matters, in the event that you are unable or unavailable to do so.
• (5) A "Living Trust" is a document that is used to hold legal title to and provide a mechanism to manage your property. You can chose the person or persons you want, sometimes even yourself, as the Trustee or Trustees, to carry out the orders that you lay out in the Trust. It also names one or more Successor Trustees to take over, if you cannot. Unlike a Will, a Trust usually becomes effective immediately, continues in force during your lifetime (even in the event of your incapacity), and continues after your death. However, most Trusts are "revocable," which allows the person who creates the Trust to make future amendments and modifications, or even to terminate it. If the Trust is "irrevocable," changes, modifications and termination are very difficult, sometimes impossible, to enact. Such Trusts often carry some tax benefits. Trusts further help you avoid or minimize the expenses, delays and publicity of probate.
• (6) A "Family Limited Partnership" can be used to own and manage your property, in a manner similar to a Trust, but allowing the use of additional tax planning techniques. Family Limited Partnerships are usually used for those who have large estates and consequently have a need for specialized estate planning in order to minimize federal and state estate taxes, death taxes, and/or inheritance taxes, as well as provide elements of asset protection.

What is a conservatorship?

If a situation befalls you, such as an incurable disease or a debilitating accident, and you are unable to manage your own affairs, state law may require someone to go to court to have a conservator appointed. The conservator is given the authority to make financial decisions and handle your financial affairs, under court supervision, when you do not have the ability to manage them on your own.

The conservator is required to make periodic reports to the court and to petition the court for additional authority under certain circumstances. In most cases, the conservator is paid for services rendered on your behalf and there will be attorney fees as well. Furthermore, the court often requires your conservator to purchase a "surety bond," which is a type of insurance policy, to protect the conservatorship estate. The costs and expenses of a conservatorship are paid by your estate.

How can my estate plan lower the federal estate transfer tax liability?

An estate plan can take advantage of certain tax avoidance techniques for those who have accumulated some wealth; this gives more of your property to your intended beneficiaries, instead of giving it to the federal government. Some of these techniques include:

• A tax by-pass trust, to hold property for your children, while still providing for your surviving spouse during his or her lifetime
• Distribution of share in a Family Limited Partnership, to take advantage of minority and lack of marketability valuation discounts
• A gift program to take advantage of the current gift tax exclusion, so as to prevent a greater tax in the future in the form of an estate tax
• An irrevocable trust to manage property outside of your estate, so that the property is not part of your estate at the time of death

If it is done properly, tax planning as part of estate planning can, depending on the size of one's estate, save hundreds of thousands to millions dollars.

Can I leave my pension to my spouse or to my child?

Typically, if you are married, your spouse has the right to a portion of your pension if you die. However, there is some cost, that usually serves to reduce the monthly retirement payments you would have received if the benefits were to be paid just during your lifetime. If you and your spouse agree, you can waive this survivor benefit protection and sometimes name some other person(s) (such as a child) as your beneficiary. The details and consequences of such a manuver can be discussed with you estate planner.