Estate Planning Basics

Posted on Jul 15, 2015

Although the current state of estate tax law is uncertain, it is important not to lose sight of the many reasons estate planning is still essential.

Protecting Assets. Individuals with a high net worth may be able to protect their assets from certain risks and business liabilities by the proper use of estate planning vehicles. For example, business owners who may be at risk for legal actions may want to protect their personal assets from the liabilities of the business. These individuals may want to establish an entity to operate their businesses or establish a family limited partnership or limited liability company to hold their personal assets. The interests held in these entities may also entitle the owners to a certain reduction of their valuation from a tax-saving perspective while the Death Tax is still applicable.

Managing Assets. Other than tax savings, trusts and other estate planning tools can be used to provide for the management of assets by appointed trustees acting for the benefit of designated beneficiaries.

Distributing Assets. Wills can be used to determine the distribution of an estate’s assets. Assets of individuals who die without a will are distributed according to state law. In Washington, for example, the law currently provides that all community property passes to the spouse, whereas separate property – which may include property accumulated prior to marriage, inheritance, or gifts to the deceased – is divided between the spouse and any children (one-half to the spouse and one-half divided among the children). In Oregon, a non-community property state, the law provides that the surviving spouse receives the intestate property of the deceased if the deceased did not have children or if all of the children were born to the surviving spouse. However, if the children were not born to the surviving spouse, theseparate property of the deceased is divided and the surviving spouse receives one-half while the other half is divided equally among the children. In California, another community property state, all community property passes to the spouse, but again, separate property is divided. If the deceased had only one child, the surviving spouse will receive one-half and the child will receive one-half. If there is more than one child, the surviving spouse will receive one-third of the separate property, and the children will receive equal shares of the remaining two-thirds. The mandate of individual state laws may be contrary to your wishes for the distribution of your property. For example, if you are a Washington or California resident and you intend to give all your property, including separate property, to your surviving spouse, you must do so by means of a will.


Appointing Guardians. Trusts for minor children can be used to appoint guardians and to tailor the investment and distribution of assets to meet a family’s goals. Such trusts may specify the age at which the children will receive distributions and the percentage of the estate each child will receive at the specified age. You may even provide guidelines to a trustee as to a possible increase or decrease of distribution based on unforeseen circumstances. A trust may also include certain provisions to protect the estate from creditor claims or the spendthrift character of a child.

For example, a typical minors’ trust may provide that a trustee will pay for the education expenses and housing of the child until he or she graduates from college; thereafter, the child will receive 25% of his or her share at age 25, another 25% at age 30, and the remaining 50% at age 35. The use of such trusts allows parents to control the distribution of their assets based upon their children’s needs and specific characteristics.

Appointing an Attorney-in-Fact. A power of attorney permits an individual (the so-called “principal”) to authorize another person to act on that individual’s behalf during the individual’s lifetime. A power of attorney can authorize the attorney-in-fact to perform a single act or a multitude of acts. A durable power of attorney permits the attorney-in-fact to act on the principal’s behalf even if the principal is incapacitated.

Where the power of attorney so provides, the attorney-in-fact can use the principal’s funds to pay bills, buy and sell stocks, or can make contracts for the benefit of the principal. For example, an aging parent may wish to give a durable power of attorney to a responsible adult child so that the child can act on the parent’s behalf and carry on routine matters in the event the parent cannot act. In many instances, this arrangement is far better than making the child a joint owner of the parent’s bank accounts or other property and assets.