Estate Planning Education Courses

What is Estate Planning?

Let’s begin with the basics: What is estate planning? Contrary to what many people think, estate planning is a very simple concept. It’s really nothing more than those steps you take in life to:

• Build wealth
• Preserve wealth
• Distribute wealth to others

Unfortunately, many people think of estate planning as vastly more complex, and as a result, either neglect their own estate plans because they’re afraid it’s too difficult, or they undertake strategies that aren’t right for them and their families.

That’s why we’ve prepared this education plan for you: to help you better understand the foundation of estate planning and make an informed decision about those strategies that are best suited to your unique goals and needs.

Proper Estate Planning

What is proper estate planning? It involves a plan that is carefully designed to meet your goals. It requires a cooperative effort between you, your attorney, and other appropriate members of your estate planning “team,” such as a financial planner, a life insurance agent, and a CPA.

Instead of taking the transaction, i.e., product oriented, approach, you should view estate planning as an ongoing process that evolves as your needs, goals, and family change, as the laws change, and as new estate planning tools and techniques are developed. It is a process of continually evolving entrance, growth, maintenance, and exit strategies. Proper planning requires professional thoroughness which respects the overall well-being of you and your family.

Your goals should include the following:

• Your control of your assets during your life.
• A business exit strategy if you have an ownership interest in a business.
• Providing instructions for your care and the management of your assets for you and your family if you become incompetent.
• Protecting the assets that you leave to your spouse and children from creditors and unscrupulous persons.
• A plan of distribution that will leave your assets to whom you want, when you want, and with whatever controls you want.

Keep The Money In The Family

Save the greatest amount of taxes and post death administrative costs possible—not only in your own estate, but in the estates of your spouse and your descendants.

Estate Planning Builds on the Foundation of a Solid Financial Plan

As you may already have guessed, the first phase of estate planning—building wealth—is usually a process you undertake with your financial advisor. Preserving wealth from taxes and other threats is a shared goal of both financial planning and estate planning. The final phase—distribution—is the process we’ll focus on throughout the rest of this program. At its conclusion, you’ll know how to transfer on to your loved ones all the assets you’ve taken a lifetime to accumulate, in the most efficient, trouble-free manner possible.

The High Cost of Passing On Your Wealth: Settlement Cost

Two of the most important goals of wise estate planning are eliminating final expenses and reducing or eliminating estate taxes. Without careful planning, the cost of passing your estate on to your heirs—so-called settlement costs—could make a serious dent in the wealth you hoped to leave them. Another costly expense—estate taxes—can take an even larger bite out of your estate if you don’t plan carefully.

How much is left for your loved ones after you die depends on the estate planning options you choose. Basically, you have three choices:

• No estate plan at all... dying “intestate”
• A last will and testament
• A living trust

Some people would add a fourth option: joint tenancy with rights of survivorship. Joint tenancy is a form of ownership in which you and another person—usually your spouse—own an asset together, with the survivor immediately inheriting full ownership of the asset from the other at his or her death. That means, of course, that there is no probate, but the remaining spouse ends up owning the entire estate with only one exeption. But if you think that joint tenancy is an effective estate planning solution, then read on!

Joint Tenancy: A Poor Substitute for Estate Planning

As we just mentioned, one way people attempt to avoid the estate planning process is with joint tenancy. In fact, it’s often called the poor man’s will. But in many cases, it’s really a poor will substitute.

For example, assume that a married couple uses joint tenancy as a planning option. If their estate is worth more than the unified tax credit, joint tenancy will give them no option for effective tax planning (more about estate taxes and the need for proper planning). Further, if one of the joint tenants gets into credit trouble, gets sued or has a judgment against him, the creditor can seize the entire jointly-owned asset to satisfy the debt, leaving the other joint tenant with no recourse. And joint tenancy is only a short-term solution to avoiding probate. While there will be no probate at the first death, the entire estate will be subject to probate when the survivor dies.

Finally, joint tenancy is basically a game of winner-take-all, with the survivor having complete control over how the couple’s wealth will be passed on, and the first-to-die having absolutely none. Let’s look at an example. Let’s say that a husband, who owned all his assets with his wife in joint tenancy, dies. His widow immediately assumes full ownership of all their assets. Later, she remarries, but soon dies, leaving all of her assets—and her first husband’s assets as well—to her new husband. If the widow’s first husband had children from a previous marriage, he has effectively disinherited his own children by using joint tenancy.

While there are clear-cut problems when spouses use joint tenancy instead of a more thoughtful estate plan, joint tenancy can be an outright disaster when someone uses joint tenancy with a nonspouse.

All the same risks as those we just described for a married couple exist with unmarried joint tenants. But here’s an added problem: when you add a nonspouse as a joint tenant to a valuable asset, you may inadvertently create a taxable event, with either gift taxes or estate taxes due on the transaction! So you see, in many cases, joint tenancy is a poor substitute for better planning options.