*** g98 12/8 pp. 24-27 The Wisdom and Benefits of Estate Planning *** The Wisdom and Benefits of Estate Planning
THE Petersons were disappointed. They had counted on the funds received from the sale of their properties to help them finance their retirement years and to provide enough, eventually, to make a nice gift to their children as well. Those expectations were dashed by the heavy taxes incurred when the properties were sold.The Smiths too had properties that had grown significantly in value over the years. Through a special arrangement in the sale of those properties, they were able to arrange for a retirement income for themselves, a nice gift to their children, and something for their favorite charity besides.
Rose Jones found herself at the end of her rope. Soon after her husband’s untimely death, she began receiving papers she didn’t understand from the state and federal government. Her husband, John, had always taken care of their finances, including the payment of taxes, the procurement of life insurance, and so on. He had always told her not to worry—"everything was taken care of." But since he died without a will, some of the assets she depended on for income were frozen. She was advised that she now needed to retain an attorney to help her find out what assets her husband had left and what would be involved in transferring these to her name. She was also told that some portion of these assets, by law, would be transferred to her husband’s children by a previous marriage, even though she knew that this was not his intention. Facing the crushing weight of being a widow was only made worse by not knowing what to do and by worrying about how much it would cost to put things back in order.
Mary Brown also suffered the tragedy of losing her husband to an untimely death. She took some comfort in the knowledge that her husband had made adequate life insurance provisions so that she and their two children would be provided for economically. She also understood what assets became hers immediately upon the demise of her husband and what assets would be coming to her through her husband’s will. Although adjusting to the challenges of widowhood, she was deeply grateful to her husband for being so considerate in organizing his affairs, so that his death had virtually no financial impact on her and the children. What made the difference for the Smiths and Mary Brown? Estate planning.
What Is Estate Planning?
Estate planning is simply a process of deciding how your assets will be distributed at your death and then taking steps to carry out your decisions effectively and economically. Such steps may involve titling assets, naming beneficiaries, and creating such documents as wills and trusts. In complex situations it will involve much more. While most people would no doubt agree on the wisdom of making such arrangements, relatively few have done so. A surprising 70 percent of adults in the United States do not have a will! Typical of the excuses are the following: "I’m too busy; I’ll get around to it later." "I don’t have a lot of money or valuable things to pass on." "I don’t have a lawyer." "I don’t like to think of my own mortality." "I don’t know where to start."
Granted, the thought of estate planning may be intimidating. But it need not be. Getting started is often simply a case of getting organized and understanding the decisions you face. Like many things, estate planning is not difficult when broken down into steps and tackled one step at a time.
Steps to Take
The first step is to inventory your estate. You should list not only what you own but also what each asset is worth and how you own it or how it is titled. (See the box "Net Worth Work Sheet.") Most assets can be classified as securities (stocks, bonds, mutual funds), real property (your home, rental or investment property), bank accounts (savings, checking, money market funds), personal property (collections, art, jewelry, cars, furniture), life insurance, retirement benefits, and businesses. After listing what you own, make a list of what you owe, such as mortgages, loans, notes, and credit card balances. Subtracting these liabilities from the total of your assets shows your net worth. In many countries a tax is imposed on what is transferred to others at death. The amount of tax depends on the net value of the assets transferred, so the amount of your net worth is an important figure to determine.
The second step is to look at your ultimate objectives—not in terms of amounts, but in terms of what you want to accomplish for both yourself and your beneficiaries. Typically, a married person will want to provide security for his or her spouse. A parent may want to provide some measure of financial protection for his or her children. An adult child may want to arrange for the care of an elderly parent. Additionally, you may want to remember certain friends or charities in your estate plan. It is important to write down who is to be included in your estate plan and your objective with regard to each. Don’t forget to consider the various contingencies that can affect your estate plan. For example, what if the beneficiary predeceases you? Would you then like that share to go to his or her spouse, children, or perhaps someone else?
The third step is to select those responsible for carrying out your wishes. In most cases you will need an executor and perhaps a guardian and a trustee. No matter whom you select, have at least one backup, and make sure that everyone you name is willing to take on the job. The executor is the one who will gather your assets after your death, handle any legal or probate proceedings and, ultimately, distribute your assets according to your wishes. A family member is often the best choice for this responsibility, although an institution such as a bank trust department may be preferable if your situation is complex. A guardian should be named in your will to raise your children in the event that you and your spouse die while the children are still minors. If your plan includes trusts for your children, the guardian can also be named the trustee, providing he or she has the skills to manage the funds. If the guardian is lacking in financial expertise, an institution such as a bank trust department could be named as sole trustee or cotrustee along with the guardian.
The fourth step is to understand the tools available to help you accomplish your objectives. Do you want to make an outright gift to a beneficiary, or would you rather leave property in trust for that one’s benefit? There’s a big difference. When you leave property outright, your interest in that property ends when you die. However, even after your death, you continue to exercise some control over property that is left in trust. The trustee you name will manage and use assets for the benefit of the beneficiaries according to your instructions in the trust. With minor children, for example, a trust can arrange for their care according to their individual needs and then dictate at what age(s) a child acquires control over the assets contained in the trust.
Who Can Help?
In almost all cases, you should consult with one trained in the estate planning field to help you understand the tools available to assist you in accomplishing your objectives. Your estate plan should be designed to fit your unique goals and circumstances. Creating your estate plan may require the help of a variety of advisers, such as an accountant, a financial planner, and an insurance agent. If your estate plan involves a charity, you may be able to receive free educational assistance from the charity’s planned giving department. The Planned Giving Desk of the Watch Tower Bible and Tract Society, for example, provides assistance for those who are interested in including the Society in their estate planning. Many have benefited from this service by receiving clear suggestions on how best to arrange their affairs so as to minimize taxes and maximize the benefits left to their loved ones and to the Society.
Although many may be involved in the planning stages, your final estate plan and the necessary documents should be prepared by an attorney who specializes in estate planning. You should feel free to ask any adviser about his background and experience in estate planning. If you have a particular concern, such as passing a business down to your family or caring for a disabled relative, ask the adviser if he has had previous experience in such areas. In all cases, ask for an explanation of what the charges will be for services rendered, and get this understanding in writing.
Estate planning is an area where a little knowledge can be a dangerous thing. Consider as an illustration a couple whom we will name Paul and Mary. They wanted to leave all their belongings equally to their three daughters. Since their daughter Sarah was living next door to them, they decided to add her name to their own, jointly titling their assets. ‘This way,’ they thought, ‘Sarah will be able to manage our assets if we become disabled. Additionally, jointly titling everything with Sarah means she will be the sole owner at our deaths, and we’ll avoid the need for a will and probate. She can just split what’s left with her sisters after we’re gone.’
But things did not work out as Paul and Mary had planned. After her parents’ death, Sarah did share their estate with her sisters, but the transfer to them brought about a tax that greatly reduced her share. Besides, being a joint owner did not give Sarah all the management capabilities her parents had wanted her to have. Paul and Mary’s objectives were good. They wanted to ensure that they would be cared for in the event of their disability. They also desired a smooth and inexpensive transfer of their assets to their children. However, they chose the wrong tools to carry out those objectives. Planning your estate should not be a once-in-a-lifetime exercise. Periodic review is necessary because tax laws change, inheritance laws change, and circumstances in life change. The death of a relative, the birth of grandchildren, the receipt of an inheritance, and the growth of an asset are all events that could trigger the need for a review of your estate plan.
Yes, estate planning is a challenge. It involves time, energy, and dedication. And it frequently involves making some hard decisions. Planning an estate is a deeply emotional process. It involves the people and the causes you care about and your wishes for their future. It takes serious inward searching to decide what you want to do with your assets and to determine the best way to accomplish those goals. However, if one does not give proper attention to estate planning, serious problems can result, as illustrated in the opening experiences of this article. Yes, the rewards will more than justify the costs. The greatest reward is the peace of mind that comes from knowing you have an up-to-date plan to protect your loved ones