Why Create an Estate Plan?

For most of us the word “estate” conjures up images of an imposing and architecturally flamboyant mansion sitting atop a large tract of property, replete with green rolling hills, majestically tall trees, rows of ornate statuary, and an abundance of glimmering pools and bubbling fountains.

In the realm of law, however, the word “estate” actually has a different meaning. An estate is simply the net worth of a person at any point in time, whether that person is alive or dead. More precisely, it is the sum total of one’s assets, rights and interests minus any debts and liabilities. These assets can include bank accounts, real estate, stocks and bonds, jewelry, furniture, cars and/or any other tangible or intangible type of possession.

Regardless of an individual’s actual wealth, anyone who has any real or personal property of any kind that can be passed on to someone else at the time of death has, in fact, an estate. When a person does die, his or her estate now becomes a legal entity by which those assets are administered and those debts and liabilities, settled.

What is an Estate Plan?                 

Broadly speaking, an estate plan is a set of directives that encompasses the accumulation, conservation and distribution of an estate. An estate plan can either be formulated voluntarily by anyone who wishes to direct the estate’s distribution of property after one’s death, or it can be the default plan that is codified by law in every state in the country. In other words, an estate plan is something that an individual can create, or something that the courts will impose, should a person die without leaving an estate plan containing a precise set of instructions.

The most important part of an estate plan is the will. A will is a legal document that outlines who is going to receive your assets after your death. It names the individuals who will receive your property and in what amounts. It nominates an “executor” who will be responsible for managing your estate, and pay your debts, expenses and taxes. In many cases, it will name the guardians who will be responsible for your minor children.

Your will will not include any bank or security accounts that have designated beneficiaries, including life insurance policies, individual retirement and other tax-deferred retirement plans, pay on death (POD) assets, such as U.S. savings bonds, certain trustee bank accounts, and some annuities. Your will will also exclude certain co-owned assets such as joint bank accounts and real property. These assets will go directly to the person already designated to receive them.

However, an estate plan can be more than just a will, alone. An estate plan may also include: under what circumstance it may make sense to distribute your assets during your lifetime; how and by whom your medical care will be managed during your lifetime by way of a health care proxy and/or a living will should you become incapacitated; how to deal with your business assets by giving someone durable power of attorney; how you want your earthly remains to be disposed of; how to set up a living trust; and/or how and to whom you wish to leave a charitable legacy.

Why Should Someone Create an Estate Plan?

There are a variety of reasons why an individual should create an estate plan. Here are the most common:

Avoid Probate

When a person dies, his or her estate must go through probate. Probate is a court process that determines how the estate of a decedent will be administered. If the person has left a will, directing how his or her property should be distributed after death, the probate court will decide if the will is valid and given legal effect. If a person dies, intestate, i.e. without a will, the probate court will appoint someone as the estate’s “personal representative” to collect and distribute the decedent’s property according to the particular state’s laws. The court will also supervise the liquidating of the estate’s liabilities and the paying of all necessary taxes. By having an estate plan, you can manage to avoid some of the expenses and complications of probate.

Reducing Estate Taxes

If you have a considerable estate, it will be subject to state and/or federal estate, and/or inheritance, taxes. A variety of estate planning techniques can minimize or even eliminate some of these taxes.

Preventing Family Squabbles

It’s a sad fact that not all families get along. Without an estate plan in place, heirs and other potential beneficiaries may fight over the distribution of a decedent’s assets. By choosing how assets are to be allocated and who will be in charge of the estate, you can avoid family fights and potentially costly court proceedings.

Protecting Beneficiaries

An estate plan can help protect minor beneficiaries by naming a guardian to oversee a minor’s needs and finances until he or she becomes a legal adult. It can also help protect adult beneficiaries from bad decisions, creditor issues, and other issues in life that a particular adult beneficiary may not be able to handle well.

Protecting Assets from Unforeseen Creditors

Asset protection by way of advanced estate planning techniques such as family limited liability companies and irrevocable trusts can help protect assets after your death from being taken by someone who wins a lawsuit against you.

Do You Need An Estate Plan?

While everyone with assets or a family should have a will (and almost 55 percent of Americans don’t have one), not everyone needs an estate plan. Your decision will depend on several factors, including:

  • The size of your estate – If your estate exceeds the estate tax inclusion (the federal estate tax exclusion is currently $5.34 million; state exclusions vary) you probably want to have an estate plan that helps minimize estate taxes.
  • What state you live in – Some states have estate and/or inheritance taxes and some don’t.
  • Whether or not you have children and/or grandchildren – How you want your assets to be divided by your heirs will be decided via your will and/or professionally managed trusts.
  • How important it is for you to keep the administration of your estate private – Minimizing the probate process can help protect your privacy since all probate proceedings are available to the public, including any creditors who may want to challenge your will.
  • How much money you might want to leave to charity – An estate plan can include provisions for charitable trusts which can allocate proceedings to charities and beneficiaries. These types of trusts can also help reduce or eliminate certain capital gains and/or estate taxes.
  • If you own a business, how you want it to be run if you should die or become incapacitated – An estate plan can help determine how to best plan for your business after you pass away.
  • Any special circumstances (families split by divorce; blended families; relatives with disabilities) – For example, a parent may want to leave a different inheritance to biological children or children with disabilities than to step-children; or an estate plan may make provisions for a surviving spouse who remarries.

Consulting an Orlando Estate Planning Attorney

Just as you can sell your home, yourself, you can, with enough homework and effort, do your own estate planning. But just as you would probably benefit by taking advantage of the professionalism of a real estate agent in order to get the best deal possible when selling your home, when deciding to create and implement an estate plan, it is advisable that you work with a competent financial planner who has the expertise to help you navigate all the legal and pecuniary aspects of the process.

Contact us, we can help you create the estate plan that works best for you and your family. Contact our office or call for a free consultation.


By John R. Samaan

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Posted in: Estate Planning

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