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The Planning Process: Estate Planning

Estate Preservation Strategy

Anybody who has worked hard, saved, and invested needs an estate preservation strategy. A good one can help ensure that your assets are protected and loved ones cared for in the future. One of the best reasons to preserve an estate is to honor what you’ve done. People don’t want everything they’ve worked for in their lives to have no value in the future.

Estate preservation strategies vary greatly. Each must address the unique financial situation of the individual for whom it was crafted. Admittedly, some estate issues are complex. However, your financial professional is readily available to deal with every imaginable issue and can be invaluable in collaborating with your legal advisors to create an estate plan—a formal roadmap to safeguarding your finances and possessions.

When should you develop an estate preservation strategy? There is no “right” age—but delay is unwise. It’s best to start early but, unfortunately, few people do. For example, fewer than half of American adults have a will.1 Reasons for delay vary. Many of us lead hectic lives. Others are uncomfortable discussing a time when they won’t be here. Still others want to avoid dealing with complex financial and legal issues.

While these factors are understandable, they’re outweighed by the benefits of having a sound estate preservation strategy. These include reducing estate taxes, allowing for a timely resolution of your estate and ensuring assets are distributed and protected according to your wishes. In addition, a strategy guarantees that, if you’re unable to make them, financial and health care decisions reflect your desires. While differing greatly from person to person, estate strategies typically are developed using a similar process.

The first step is to find expert assistance. A good team of advisors—including your attorney, financial professional, accountant, insurance agent and investment advisor—is essential. Once a team is assembled, start setting goals. Answering two questions will help:

How much money will you need for your lifetime?

It’s most important when goal setting to ensure you have enough to live on. This is known as the “necessary estate.” Without determining how much you will need for the rest of your life, and knowing that you are comfortable, you can’t move on to preparing an estate plan. Pinpointing your necessary estate and thus your “excess estate”—the money you won’t need—is more likely to lead to good decisions.

Where do you want your assets to go?

There are really only three places: heirs, charity or estate taxes. So, think carefully about the first two categories and, if this meets your objectives, do all possible to reduce the effect of the third.

After establishing goals, work with advisors to create a formal estate plan. This provides both a vision of the future and a path to get there. Estate plans can have many elements. However, almost all contain a few basics, such as:

  • A will. This is the most basic and necessary of all estate documents. It determines where assets go.
  • Health care power of attorney. This document spells out who will make health care decisions for you, if you cannot.
  • Financial power of attorney. This identifies who will make financial decisions, if you cannot.
  • A trust. Trusts come in many different forms. However, one of their chief functions generally is to protect assets. They also can avoid the delays and costs associated with probate. Trusts are not for the very rich alone, but can serve the needs of a wide range of people.

Once an estate plan is completed, be sure that all assets are titled so they reflect what’s in it. If they aren’t, the plan could be ineffective, confusing and counterproductive.

Remember that estate plans are not static. Tax laws are revised. Property is bought and sold. Marital and family statuses change. Objectives change. These events and others can affect a plan. So, monitoring is important. Annual—or even quarterly—reviews are appropriate.

While estate strategies often focus on personal assets, business owners also should safeguard their commercial interests. Without a plan, part or all of a business may have to be sold to pay estate taxes. Address business needs at about the same time that you deal with your estate. Consider drafting a succession plan that speaks to long-term management and ownership.

Finally, leave a paper trail. Write a list that covers all your assets and liabilities. Put that in a safe place with all your important documents, especially those related to your estate plan. Make sure that people you trust know where the list and papers are located.

1 "How Many Americans Have a Will?" 06/23/2021.

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