PLANNING FREQUENTLY ASKED QUESTIONS
is an estate plan?
An estate plan is a systematic process of planning for the
accumulation, conservation, and distribution of an estate using the
most efficient and effective methods for accomplishing the wishes of
the owner. Tax considerations are usually a significant part of the
effort. At the death of the owner, the estate plan functions to
distribute the estate with minimum administration costs and taxes
according to the wishes of the owner. Minimizing the cost of
distributing an estate can only be accomplished by anticipating
expenses and planning ways to avoid them before death occurs.
questions should I ask someone Iím interviewing as an estate
Questions should focus on knowledge, ethics/conflicts of interest, and
competency. Examples include questions concerning (1) their education
(law school), experience, licenses, credentials and professional
designations, (2) any disciplinary actions, (3) the method of
compensation, (4) a list of client references, and (5) their view of
the most important aspects of estate planning.
often do I need to review my estate plan?
Like financial plans, estate plans require periodic review to make
sure they remain current and viable. According to "The Truth
About Money" (Georgetown University Press, Washington, D.C.),
"You should review your estate plan if your marital status has
changed; your state of residence has changed; your income or net worth
has changed; your health has changed; family members have died or been
born, or five years have passed" since the last time you reviewed
your plans. Also, you should update your estate plan whenever the laws
governing estate tax are changed, for example President Bushís new
tax reform act of 2001(called EGGTAR 2001by some practitioners).
will getting married affect my financial and estate planning?
Getting married will affect every facet of your life, especially
issues that revolve around money. According to "The New Century
Family Money Book" (Dell Publishing), "Everything from
health, property, casualty and life insurance to checking, savings,
investment, and retirement accounts will need to be revised. If
children from a previous marriage are involved, tuition planning that
was in the works will need to be revised and recalculated -- or begun.
Devise a budget, based on your increased or decreased income, that
spells out what percentage of whose paycheck goes to the paying of
which bills "Your personal circumstances may have changed for the
better, but be sure your financial circumstances donít suffer as a
result of marriage. Be certain that you and your spouse devise a
budget for household expenses and a financial plan for the stages in
your newly linked lives; purchasing a home, having children, paying
for their education, and building your retirement nest egg." Make
sure you and your spouse set aside enough time every year to review
your long-term financial plans and make needed adjustments.
will a divorce affect my estate planning?
If you are getting divorced, both you and your spouse should ask an
attorney to review and revise your wills and related estate planning
tools to account for your new status as single people. According to
"The New Century Family Money Book" (Dell Publishing),
"Most states will not allow couples who are in the process of
divorcing but are still legally married to completely disinherit the
spouse. During the period of separation preceding a divorce, you may
wish to reduce your spouseís bequest to the minimum amount required
by law. When the divorce is finalized, you will probably need to
redraft the will as well as other estate planning documents to change
beneficiaries and trustees, at least. Pay careful attention to
guardianship arrangements for children. "A number of estate and
gift tax opportunities and pitfalls may arise as a result of a
divorce. Certain trusts can protect a former spouse who is financially
inexperienced and can protect the childrenís inheritance in the
event that the former spouse remarries and subsequently
divorces." As with other estate planning issues, itís
imperative to get the help of legal and tax professionals.
impact would a bankruptcy filing have on my estate?
If you are in a position to file for bankruptcy, chances are your net
estate, your assets minus debts, is less than zero. Bankruptcy will
likely increase the size of your estate because certain assets, such
as your home, are protected from seizure by creditors. Bankruptcy
wipes the slate clean of debt. By eliminating your debts and
protecting certain assets, a bankruptcy filing may allow you to leave
something to your heirs. Filing for bankruptcy protection isnít
something to be done casually, however. It remains a part of your
credit record for up to 10 years. If your life expectancy is less than
that, you may not care, but many of those who have declared bankruptcy
often find themselves in the same debt problem in about five years.
should I set up a trust? Do I need one at all?
It depends on the size of your estate and the purpose of the trust.
For example, if you mainly want a living trust to protect assets from
taxes and probate but your estate is under the current federal tax
floor ($675,000 for 2001) and small enough to qualify for quick and
inexpensive probate in your state, some lawyers would tell you it
isnít worth the cost. However, a trust can do a number of things a
will canít do as well unless the will establishes a trust or pours
over into a trust. If you want to avoid a court hearing if you become
incompetent or unable to provide for yourself, or if you want to
provide for grandchildren, minor children, or relatives with a
disability that makes it difficult for them to manage money, a trust
has many advantages. If you have a trust, your trustee can manage
assets efficiently if you should die and your beneficiaries are minor
children or others not up to the responsibility of handling the
estate. And a trust can protect your privacy; unlike a will, a trust
married people plan to leave everything to their spouse, and if the
spouse dies first, then it all goes to the children. Why is that a big
Many married people write a "simple will" that leaves
everything to their spouse or, if the spouse dies first, leaves
everything to their children. Unfortunately, such a will can cause
huge problems later. For example, say John and Mary have two children.
John dies, leaving everything to Mary. Mary later marries Bob, a
widower with three children of his own. Then Mary dies, leaving
everything to Bob. All of Johnís assets now belong to Bob, a guy he
never met, and Johnís children get nothing. And when Bob dies,
Bobís own children will inherit his assets -- which would now
include everything that John and Mary had spent their whole lives
working for. Check with a good estate planning attorney to answer your
estate planning questions in detail. The first half hour is often free
and if you take action on the ideas presented, it will be time well
am planning to leave my entire estate to my spouse, but what would
happen if we both died at the same time?
Many married people leave their entire estate to their spouse, or to
their children if the spouse dies first. But that can create problems
if the couple dies at the same time-for example, in an automobile
crash-or if the two die within a very short time of each other.
According to "The Wall Street Journal Guide to Planning Your
Financial Future" (Lightbulb Press Inc., N.Y.), "To cover
that possibility, you can include a simultaneous death clause in your
will to pass your property directly to your surviving heirs. You can
also require that any beneficiary survive you by a certain length of
time-often 45 days-in order to inherit. This provision saves double
taxes and court costs, and lets you decide who is next in line for
your property." More importantly, you should meet with an
attorney to help you and your spouse address all of the vital issues
involved in estate planning.
two people be appointed as joint guardians of my child?
Itís perfectly legal to name a couple as guardians of your child,
but some lawyers and financial experts suggest you name one particular
individual instead. Why? "Because couples get divorced, or they
canít agree on how to raise the kids," according to The
Five-Minute Lawyerís Guide to Estate Planning (Dell Publishing, New
York). "Name the person you want, the one you most trust to make
the right decisions, and then the couple can work out their respective
roles between them."
a business owner, how can I use an unfunded buy-sell agreement for my
An unfunded buy-sell agreement is a tool to help a business plan its
future. According to "Wealth Enhancement & Preservation"
(The Institute Inc., Denver), "Typically, an unfunded buy-sell
agreement is used to satisfy the desire of key people to have the
opportunity to buy the business at the ownerís death. However, an
unfunded agreement may not be effective if the would-be buyers donít
have the funding necessary to complete the purchase. A prudent method
to safeguard such an arrangement is to insure the ownerís life for
the benefit of the ownerís family. Then if the buyout is not
successful, the ownerís family will still be well cared for. If the
buyout does occur, the ownerís family will be that much ahead."
An unfunded buy-sell agreement can be combined with other tools, such
as an irrevocable life insurance trust or a family partnership, to
provide further protection to both parties.