Do you really need an estate plan?
If you’re confident that your loved ones are adequately provided for when you die, you don’t need an estate plan. If you’re sure you’re doing everything possible to avoid estate taxes, you don’t need an estate plan. If you’re okay with government bureaucrats potentially deciding how your assets will one day be distributed, you don’t need an estate plan.
On the other hand, if you want to ensure your estate will pass to your loved ones or to charity in strict accordance with your wishes, you do need an estate plan.
An estate plan is simply the codified disposition of your current and projected assets. There are many tools and techniques that can be used to effectively transfer your estate to your heirs while minimizing taxes. Some of these tools and techniques include:
• Wills
• Trusts
• Life insurance
• Partnerships
Take insurance, which is often a key part of affluent individuals’ estate plans. The ability to creatively use life insurance and pay the premiums in a highly efficient manner can be very beneficial for wealthier business owners. The ability to purchase life insurance with pre-tax dollars, foreign grantor trusts, and dynasty trusts are also useful tools.
Lowering or eliminating the taxes—while often very important—is not always the most essential driver of an estate plan. The ultimate goal of your estate plan is the transfer of your wealth in accordance with your wishes. For most people—at all levels of wealth—having their estate plan accomplish their agenda is the truest criterion of success.
To make sure your estate plan delivers the outcomes you want, you need to be extremely clear on what you want to happen with your assets. Getting at these goals and preferences is the all-important advance work that needs to happen before tools and techniques are even discussed or considered.
The mechanics of estate plans, even for the most complex estates, are not the issue. All sophisticated tax specialists have the same toolkit with all the available strategies. What really matters is which strategies and how to best use them on behalf of any particular client. Understanding—in considerable detail—what a person wants to happen is absolutely essential. And learning what matters to a client usually takes time and effort.
Inadequately designed life insurance is all too pervasive among affluent business owners. Many wealthy families have far too much insurance while others don’t have nearly enough given their goals. What’s more pervasive is that many wealthier families pay for life insurance in extremely tax-inefficient ways that can hurt their financial position
You need to work with a highly technically proficient professional who is finely attuned to your interests and desired outcomes. Such a professional will help you to get very clear about your preferences, expectations, and concerns, and will then be able to help you think through the practical and reasonable possibilities available to you.
Keep in mind, an estate plan is no a set-it-and-forget-it tool. Tax laws are often changing in big and small ways. Your personal situation is most likely also in flux. Therefore, it makes sense to evaluate your estate plan regularly and revise it when appropriate.
