Top Ten Estate Planning Fundamentals

1.       Plan for Incapacitation or Disability

You are likely to be temporarily or permanently incapacitated or disabled at some time prior to death. Without proper legal documents, your incapacity will likely require appointment of a guardian, which involves costly and invasive court proceedings. Prepare for being unable to make decisions or express your intent by giving power to trusted persons to act on your behalf. Designate your preference for guardians for your minor children. Consider, and then execute, the following: Durable Power of Attorney, Health Care Surrogate Designation, Living Will, and special business and professional Powers of Attorney.

2.       Title Your Assets Carefully

Any asset titled in your name alone without a pay-on-death beneficiary will be subject to probate (and creditors’ claims) prior to passing to your heirs. Title your assets and designate beneficiaries on life insurance and retirement plans carefully and flexibly.  Exact wording is important, as well as asking “what if?”:  (a) “What if I die before the other owner(s)? Who owns the asset then?” (b) “What if the beneficiary I name is not living, is incompetent, or has claims against him at the time I die?” Are you sure the asset will be paid to the person or persons you intend and in the correct proportions? Consider the meaning and implications of the various forms of ownership and beneficiary designation before using them: sole, joint or common ownership; rights of survivorship; tenancy by the entirety; general partnership, limited partnership or LLC or corporation; revocable trust, irrevocable trust; payable on death, in trust for, for the benefit of; custodian for a minor; per stirpes, per capita, to children, grandchildren, descendants, or heirs. Remember that anyone whose name is on an account with you will have authority to use funds on your behalf (or theirs!).

3.       Your Will (Not the State’s) Should Control

A will is essential to every complete estate plan. Even though you have assets in joint name with a spouse, or have named beneficiaries on bank accounts, life insurance policies and retirement plans, none of which require a will for disposition, or even when you have a trust, you should still have a will to fulfillment of your estate plan. Assets owned in your name alone or “in common” with others, and assets of which you may become the surviving joint owner or beneficiary, are disposed of by your will. Without a will, assets are disposed of according to state law, known as intestacy. A will also can designate your preference for permanent legal guardians of minor children, and trustees to handle their inheritance through any age you specify.

4.       Take Care of Your Assets

Take advantage of protections that are available, as a matter of law to protect certain basic property rights. Many assets are protected state or federal law and therefore cannot be taken by general creditors to satisfy your debts, including (a) life insurance policies including present cash value (b) 401(k) and other qualified retirement plan assets (c) most IRAs (d) your primary residence (d) tenancy by the entirety (for married owners), and (e) bankruptcy exemptions. Utilize the “toolbox” of legal entities to protect your personal wealth, business and professional assets, intellectual property and real estate, including trusts, LLCs, and corporations.

5.       Use Trusts

There are very few instances where the settlement of an estate and the management of affairs are not better handled by the use of a trust rather than just a will. Use a Revocable Living Trust as the centerpiece of your plan. In addition, there are dozens of types of and purposes of irrevocable trusts used to achieve many favorable income, estate and gift tax results and, when used correctly, asset protection.

6.       Avoid These “Ds”:  Debts, Divorce, Disability, and Dissipation (of inheritance)

Avoid leaving children (particularly minors or young adults without sufficient maturity) inheritances outright. An inheritance trust can be established with total discretion in the hands of the trustee to distribute assets to your heirs, or it can be written with an “ascertainable standard” for exercise of the discretion. The most commonly used standard is “HEMS” (“health, education, maintenance and support”). The trustee is charged with using their discretion as a fiduciary to benefit the beneficiary and no one else (other than possibly other heirs), particularly not creditors and others who would like to make claims against the assets. When there is an ascertainable standard, the child can even be his or her own Trustee (with back-ups of course in case they are needed). This technique is one of the most powerful ways to defend the inheritance against attack and can be incorporated into any trust leaving assets to your heirs. A specialized approach must be used for IRAs and other retirement assets left to heirs.

7.       Get Good, Up-to-Date Advice

Family: Trusted members of the immediate or extended family can be helpful to involve in your health, your estate and your financial planning –they know you, they have a moral obligation to you, they have a financial interest in a successful outcome, and they can be cut out if they betray your trust. Trust but verify. Be suspicious of family members who won’t give up control, especially if they won’t let you choose your own way and your own advisors. If you are retired but completely competent, choose a time in the future to engage one or more family members in your affairs. Tell them ahead of time you will be anticipating this help. When that time comes, bring them to meetings with professionals. Choose your professionals with the input of your family advisor(s), but it should be your final decision.

Advisors: As far as professionals go – lawyers, bankers, financial planners, stock and insurance brokers – size them up and see if you are comfortable with them; do you like them? Ask as many tough questions as you can, test their knowledge, seek second opinions, keep them honest and working hard for you. On the financial team, a little competition among advisors is healthy. Learn what it means to pay a fee for advice (fee only) versus having your assets be the basis for the fee on an ongoing basis (fee based), versus working with an advisor who is on commission only. Don’t lean too hard on any one advisor, at least not without weighing the advice against your common sense and the opinions of others whose judgment you value. Be wary of advisors who are not open to new ideas or critique. Give your advisors time to respond and refute other ideas and criticism.

8.       Formulate Your Financial Plan

Take yourself to a good financial planner (interview a few based on recommendations) even if you think it’s too early to start planning your financial future. It is never too early to do this. If you start late, just get yourself on a good financial plan as soon as you can. Consider the advice of other trusted advisors. Bring a family member or friend, or even your lawyer or CPA, to the interviews. Diversify - Do not put all your eggs in one basket such one CD, one stock or even one annuity. Consider what you want your money to do for you and your heirs –a good plan considers retirement age, major purchases, education, health care, long term care, disability, income replacement at death or disability, family business succession, and attaining objectives like giving money away while you are living, and leaving a legacy of value that includes gifts, even modest ones, to charity.

9.       It’s Your Life – Think Outside the Box

Identify your and your family’s unique purposes and interests and build your plan around these. Include in this assessment how you wish to handle special assets like vacation property, family business interests, professional practices, investment real estate and collectibles. Plan ahead for how those special assets will be treated in the last decades of your life, and how they will be inherited. Your legacy is not merely about passing wealth to your children or grandchildren, but also about the way you use your assets during your lifetime.

10.   Your Plan is Only as Good as its Maintenance.

Estate planning is lifelong activity, not just a means of distributing assets after death. Over time as laws, family circumstances, lifestyle, goals, and the identity of your assets change, it is critical to know confirm whether your estate plan has adapted or whether it needs to be updated. Perform a periodic, systematic and (at least by retirement) a yearly review to ensure the integrity of your estate plan and confirm that your planning goals remain on-target.