A Look at Basic Estate Planning Steps

April 30, 2019

estate planningEstate planning attorneys always emphasize the fact that there is no one-size-fits-all estate plan. There are many different approaches that can be taken, and the optimal course of action will depend upon the circumstances. This being stated, there is a basic framework to follow when you are entering into the process, and we will take a look at basic estate planning steps here.

Inventory Your Assets

It sounds like an overstatement of the obvious, but the first step in estate planning is to figure out what is in your estate.  In other words, you should inventory the assets that you expect to be able to pass along to your loved ones. When you are engaged in this exercise, the dynamic can be much more complex than the simple matter of addition and division of numbers.

While it is possible to simply instruct the estate administrator to liquidate all assets to reduce everything down to cash, certain property can have value that exceeds mere dollars and cents.  Many of our clients own beautiful vacation homes in a fabulous location, like Lake Tahoe, that they would lament if the property had to be sold to settle a family dispute or pay taxes.  Furthermore, requiring that property be sold can be problematic if you have property that is difficult to value or sell, such as timeshares, closely held business interests, or unique and rare collectibles.  Some family members may cherish certain items in your estate, while others have no opinion whatsoever.  You could spend some time deciding which person on your inheritance list is the right recipient for each respective piece of property that has value on multiple levels.

Another thing to keep in mind is potential tax exposure. The federal estate tax carries a $11.4 million exclusion during the current calendar year. This is the amount that can be transferred before the estate tax would kick in.  Although estate taxes are not an issue for the vast majority of our clients, there may be income tax applicable to the receipt of a retirement account, such as a 401(k) or Traditional IRA.

Create an Inheritance List

Once you gain an understanding of what you have pass along, you must determine who will enjoy the fruits of your labor. This speaks for itself, but there is another facet that is often overlooked.  It is important to consider the life situation of everyone that will be receiving bequests from you. There are different asset transfer methods, and the right choice for one person would not be appropriate for the next.

For example, if you have someone with special needs that is going to be receiving an inheritance, you have to consider government benefit eligibility. Most people with disabilities rely on Medicaid for health care insurance, and many people with special needs receive Supplemental Security Income.  These are need-based programs, so a sudden windfall could result in a loss of eligibility. To account for this, you could establish a supplemental needs trust for the benefit of a loved one. The assets could be used to enhance the beneficiary’s quality of life, but benefit eligibility would remain intact.

There is also the matter of spendthrift heirs. If you have someone in the family that is not good with money, you can establish a trust that includes spendthrift protections. The beneficiary would not have direct access to the assets in the trust, and you could instruct the trustee to provide measured distributions over an extended period of time.

Many people are concerned that an inheritance left to a married child would be comingled and subject to division in a potential divorce.  You may consider leaving assets in a beneficiary controlled trust to ensure the inheritance maintains its character as separate property.

These are couple of examples, but there are other scenarios that can be addressed through the implementation of recipient-specific transfer methods.

Name Individuals (or Professionals) as Your Successors

Once you've thought about to whom you will leave your assets, you should consider who will be responsible for administering your estate.  When anyone dies, there are certain things that must be done to wrap-up your affairs.  Final tax returns must be filed; certain affidavits may be needed to record the death of a property owner; notices should be sent to creditors and beneficiaries.  In your estate plan, you have the opportunity to name a person, or people, whom you think are trustworthy enough to deal with all of these matters upon your death and distribute the estate according to your wishes.

But it's not enough to think about financial matters, it's extremely important you consider who will be responsible for your personal or health care needs.  Ensuring your Health Care Directives adequately describe your end-of-life wishes, and more importantly appoint the right people to follow through on those matters, is also of paramount importance.

Consult With an Estate Planning Attorney

After you have completed these initial steps on your own, you have the necessary information that you need to move on to your next steps. Since there are so many different ways to proceed, you should certainly have a meaningful conversation with an estate planning attorney at this point.

Your attorney will gain an understanding of the circumstances and explain some nuances that you may not have had considered, like asset protection and incapacity planning. When you fully understand your options, you can go forward and execute the estate plan is optimal for you and your family.

If you are ready to do just that, our doors are wide open. You can request a consultation appointment if you send us a message through our contact page, and you can get in touch by phone at 775-823-9455.





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