What is an Estate, and what
is Estate Planning? Estate Planning is a part of
Financial Planning, which takes care of things
and finances after you are gone, and leave your
estate for your heirs. Everything one owns:
cash, investments, real estate, properties,
businesses, royalties all together make up one’s
estate. People set up wills and trusts to manage
their estate after they leave for ‘heaven’. If
you die without a will, you die ‘intestate’ and
the State/Government will determine how to
dispose of your estate.
A well documented Will (and trust) makes life
easier for everyone, as specific instructions
are provided in the Will to distribute assets to
heirs and/or charity.
However, the State may still conduct a probate,
to establish the validity of the will, and allow
disposal of properties, afterwards. It is always
a good idea to avoid probate.
Estate Planning is not only for super-rich. A
person of modest means, with a house valued at
$300K, and a life insurance policy of $1
million, and couple of hundred thousand in a
pension plan, and a small business valued at
$500K, will total to a estate of $2 million or
so, and will trigger an estate tax of $800K, at
40% rate. Estate Planning, thus, helps in
designing plans to minimize or eliminate this
estate-tax after death, also called, ‘death
tax’, or ‘success tax’, or ‘generation-transfer
tax’ and is different from income tax.
This planning is done with the following
objectives in mind :
1. Provide fair and biggest possible share of
the estate to heirs, 2. Generate enough cash to
pay for final expenses, taxes, and charity, 3.
To save business or property for future
generations 4. To avoid, eliminate and/or hasten
the probate process, and , 5. To avoid any
discord amongst surviving family members and
The Planning is done by a team of experts,
generally an estate planning attorney, an
accountant or CPA, and a financial/estate
planner for the benefit of the client/prospect
and their immediate family members.
The basic things one needs for a sound estate
1. Updated will, 2. Correct beneficiary
designations, 3. Proper asset allocation, 4.
Adequate insurance program, like policies inside
a trust, 4. Powers of attorney for financial and
health care issues, 5. A regular gifting program
for heirs and charity, and, 6. Following the
changes in tax rules.
A bigger and more complicated estate normally
needs several things in addition to the
facts mentioned above, which could be: 1.
Generation-skipping planning, 2. Planning for
expected inheritance, 3. Transferring assets
tax-free to children and grandchildren, 4.
Survivorship or second-to-die life insurance
plans, 5. Qualified personal and charitable
trusts, 6. family limited partnerships, and, 7.
However, the most common form of estate planning
technique is the creation of an ILIT,
irrevocable life insurance trust, and placing
life insurance policies in the trust, so that
the death proceeds, which are generally received
income-tax free, can also stay out of one’s
estate. This is designed based on the wishes of
the owner of the estate, and their decision to
leave funds for: Family, Charity and Government,
after their demise. The grantor creates an
irrevocable life insurance trust, trustee(s)
purchase life insurance policies insuring
grantor’s (and/or spouse’s) life, and become(s)
the owner and beneficiary of the policy. At
grantor’s death, trustee(s) receive insurance
death benefit, and the Executor of the trust
takes care of any probate, follows the spirit of
the Will, and distributes funds amongst heirs,
charity and the government (in the form of
taxes), in the most efficient way (s) possible.