Someday, your family will receive your assets from your estate. Will the transfer be tax-efficient and safe for them? Or will it be expensive and risky? That is the fundamental choice you make with your estate plan.
If you rely only on a simple will to transfer substantial assets, for example, unnecessary taxes can greatly reduce your family's inheritance, and poor asset management could further diminish your family's wealth. You can protect your family by developing an estate plan that takes into account their needs and your overall financial situation.
Careful estate planning can prevent possible asset preservation and growth problems, as well as problems with paying for important family needs. Those might include, for example, assuring the financial strength of your closely held business or paying the higher education expenses of your children or grandchildren.
Preserving Assets from Taxes
Any estate plan begins with asset preservation as a primary goal. Preservation includes two imperatives: to prevent unnecessary taxes and provide for skillful asset management.
Although the federal estate tax is scheduled to be repealed in 2010, it remains a threat until then ~~ especially to larger estates. The value of tax planning is very clear. An estate with substantial assets that is professionally planned for minimum tax liability will pay much less in estate taxes than an unplanned estate. The tax dollars saved will vary with the estate's overall size and the specific deductions available, but the savings can easily run in the hundreds of thousands of dollars.
It is true that any amount of assets can pass to a surviving spouse without estate taxes because of the tax law's unlimited marital deduction. But no such deduction is allowed on the surviving spouse's estate. An unplanned estate can potentially cost substantial unnecessary taxes when the surviving spouse dies. The taxes are unnecessary because you can either prevent or substantially reduce them by establishing one or more carefully structured trusts under your will.
The value of asset management is equally clear. During the estate settlement period and after assets are distributed to the beneficiaries, investment decisions for a substantial estate require solid financial experience. Fortunately, this need not be a problem even if no one in your family qualifies. Your estate plan can arrange to assure long-term, careful management of your assets by placing them in a protective trust at your death ~~ with a professional asset manager as trustee. Whatever the health, financial experience, or ages of your family may be, the trustee will be responsible for their financial welfare.
Managing your family's assets involves more than a preservation effort. Continuing investment growth will be needed to counter the loss of purchasing power to inflation and to take care of increasing family needs. Although there can never be a guarantee of future investment performance, your trustee will reliably observe the investment guidelines you put in your trust document and invest the trust's assets in your beneficiaries' best interests.
Special Family Needs
You can also use a trust under your will to ensure that the trust assets meet specific needs of your family. For example, you might provide money for your grandchildren's weddings or education, or for the care of a disabled or elderly relative. A trust can also be a means to withhold control of their inheritances from your beneficiaries until they reach a certain age that you want to set. The trustee will follow whatever plan you set out in your trust document.
If you have a closely held business, your estate plan can help assure its future by carefully transferring ownership.
Professional help is essential to assure the tax efficiency of any business ownership transfer. You would do well to plan the management succession for your business - long before the time when you anticipate succession may be needed.