An estate plan can be designed by clients and their professional advisors to achieve the client’s personal and financial objectives. Or, it can be an arrangement imposed upon survivors by state intestate succession laws if someone dies with¬out a valid, up-to-date will. Even though a will is the most basic estate plan¬ning tool, two out of three cabo golf resorts, cabo golf communities Americans die without one.
A comprehensive estate plan can arrange the ownership, management and distri¬bution of your assets in ways that meet your needs and objectives while mini¬mizing estate shrinkage. Without such a plan, whatever you may think is going to happen to your estate after you’re gone probably won’t.
• Estate settlement and distribution — Estate transfer is a privilege that can be exercised only by following specific legal procedures designed to protect the rights of deceased’s heirs. Estate settlement, as this process is called, involves the assigned executor making an inventory of the person’s business and personal assets, paying all debts and claims against your estate, identifying the legal heirs of the remaining estate assets, and distributing those assets accordingly.
• The problem of estate shrinkage — The costs associated with estate settlement include funeral expenses, medical bills, legal fees, administration costs and other debts, as well as various federal or state taxes. These costs can drastically shrink the size of your estate. Because they must be paid before the estate can be fully settled, they can also delay distribution of your remaining assets to your heirs.
• The need for estate liquidity — Estates are often cash poor. Unless sufficient liquidity has been provided, the forced sale of nonliquid assets to pay settlements costs can compound estate shrinkage. In these situations, the buyer always has the upper hand. But even people of modest means who never considered themselves rich enough to need much estate planning can be in for a shock. In addition to having to settle-up with Uncle Sam and state tax collectors, creditors must be paid in full before a taxpayer’s heirs can receive their inheritances.
• A false sense of security about estate taxes — Part of the problem may be that people are so concerned about reducing their income taxes, they forget that the federal estate tax rate is virtually double the income tax rate. Actually, anyone with at least $600,000 in assets has a potential federal estate tax liability and may also face state death taxes. Federal estate tax laws, particularly the unlimited marital deduction, have lulled many taxpayers into a false sense of security. Even with a will, anyone who thinks “leaving it all to my spouse” is the way to avoid estate taxes and other estate settlement hassles needs to think again.
About the author