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Submitted by: Daniel Chen
Dan currently provides Wealth Management services in the areas of Estate Planning, Risk Management, Tax Efficient Strategies and Investment Management through an institutional investment consulting process. His twenty years as a trader in the institutional U.S. Treasury markets for firms such as Garban LLC. and Cantor Fitzgerald has provided him with immense and diverse insight of the capital markets.
The People,Property, Plans and Planners of Effective Estate Planning
A successful Estate Planner knows there are several factors involved when beginning the Estate Planning process. Drawing up outlines, committing your goals to paper, and even drafting a “will” for your attorney to prepare can be a helpful starting point. The most integral part of Estate Planning is based on the ‘4 P’s’ of Planning, which are: People, Property, Plans, and Planners. Without basing your plans on the 4 P’s, your estate may forfeit possible tax savings and incur unnecessary delays and expense upon your passing.
PEOPLE
Make a list of those people you intend to plan for. Most include family members such as spouses, children, and grandchildren, as well as close friends or longtime employees.
PROPERTY
Itemize your property and how you own it. As well as cash and investments, include any real estate, stocks, automobiles, life insurance policies, retirement/pension plans, jewelry, and collections of value. Now detail how you own it by estimating the dollar value and cost of each asset, and any income it may produce.
PLANS
Matching the People with the Property creates a plan for your Estate. You should be as explicit as possible in assigning Property to a Person. There are several ways to transfer property during a lifetime, and as part of an estate. These are explained further in the “Ways of Distributing Property” section, which also discusses the inclusion of charitable gifts.
PLANNERS
The final step requires the inclusion of professionals whom will help put your plan into effect. Among these professionals may be an attorney to draft legal documents, such as a Will or a Living Trust. You may also utilize the services of your accountant, bank and life insurance agents, investment advisors, or representatives of charitable institutions or other organizations you may wish to remember.
You are now ready to begin the process of planning your estate by meeting with the person or people you have chosen to guide you in the implementation of your plans. A draft should be prepared by a professional, and after your careful review, and maybe even with the inclusion of those named in your plans, you can settle all the outstanding details and then sign your will and all related documents. Be sure that your will and other related plans are reviewed regularly so you may update any changes in finances, family circumstances, tax laws, or other pertinent factors. It is important to include any births, deaths, or changes in marital status of those named in your estate, as those who were once dependant upon you may now be independent, as others may need greater assistance as they age or their situations change. Other significant changes may concern state laws that govern wills, as well as federal or state tax laws that may impact the way you and your advisors choose to structure your plans. This is a major reason why you should review your plan periodically with the assistance of your accountant or tax advisor.
“Ways of Distributing Property”
As discussed in the Plans section, there are several ways of distributing property that can round out your estate plan while minimizing taxes and probate expenses. Some of the most popular methods of planning include:
Living Trusts- Assets including securities or other properties can be placed in such a trust and managed according to your instructions. When the trust ends (usually at the end of one’s lifetime), the assets are managed or distributed as the trust directs, usually avoiding the probate process. The trust provisions may be changed or canceled at any time during life.
Joint Ownership- Property passes directly to the other owner at death, bypassing delays or the expense of probate. While Joint Ownership can be useful, it is not always practical to substitute it for a well planned estate.
Pay on Death/Transfer on Death- Allows the balances remaining in bank or brokerage accounts to transfer to individuals or charities upon your death.
Life Insurance Policies/Retirement Plans- These investments offer the opportunity to accumulate assets (wealth), and allow you to make meaningful gifts that may also pass outside of probate, and free of estate taxes under certain circumstances.
Gifting Property- Giving property away during life may reduce the size of the probate estate, and perhaps save estate taxes that may be due. Such gifts may be subject to a “look back” period, meaning the gifting must occur a certain number of years before your death so the recipient will not incur a tax burden.
These planning tools usually function in concert with a will, and may require legal advice. If a will is not in place, your estate may be forced to forfeit possible tax savings, and might incur delays and unexpected expenses. Your professional planner should advise you of your best course of action in planning a successful and effective estate.
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