Estate Planning

  1. Overview
  2. Facing Your Own Immortality
  3. Planning for Incapacity
  4. Advance Planning is Key
  5. Wills and Trusts
  6. What Is Estate Planning?
  7. The Importance of Estate Planning
  8. Tax Consequences
  9. Federal Estate Tax
  10. What is Probate?
  11. Challenge to Will
  12. Avoiding Probate
  13. Disposition Of Property At Death
  14. Types of Property Ownership
  15. Intestate Succession
  16. Intestacy
  17. Costs of Intestacy
  18. What Should Your Goals Be
  19. When To Address Estate Planning
  20. Major Changes in Life
  21. Financial Changes
  22. Legal Changes
  23. Post-Mortem Planning
  24. What Information To Gather
  25. Estate Planning At-A-Glance
  26. Frequently Asked Estate Planning Questions
  27. Forms and Checklists
  28. Back to Personal Finances


All taxpayers need help in planning for their retirement and for their heirs. All too often, we find ourselves so busy devoting our time, money and energy to building and managing the day-to-day affairs of the business, that we have little or no time to plan for the future. This is especially true for those who are self-employed business owners and professionals — doctors, dentists, lawyers, accountants, architects, engineers and athletes. But, the sad part is, that without adequate, competent, and objective planning, there may be little to show for your efforts.

This section endeavors to present, therefore, an easy-to-understand reference source, including:

  • planning strategies,
  • pointers,
  • techniques,
  • tools, and
  • pitfalls

to help employees, employers, business owners, professionals and their advisors, plan for a financially rewarding retirement, the transfer of their wealth to their heirs, and the efficient succession of their business or practice — taking into account both tax and non-tax considerations.

Facing Your Own Immortality

Estate planning is the process of planning for the transfer of assets to family members or others. Often these transfers take place at death, but careful planning makes use of lifetime transfers, as well, to save taxes and accomplish social, family, charitable and other goals. Most individuals do not focus on their estate planing because they do not wish to contemplate their own demise. Understanding estate planning in an objective and sophisticated way, however, can put many of these fears to rest and provide comfort that the likelihood of post-death fighting among the family over interests in the family business or other assets has been reduced. And, at the same time, the tax and other costs associated with death have been minimized.

Planning for Incapacity

Estate planning is not just about death, however. This section also discusses planning for the possibility that an individual will lose the capacity to deal with financial matters and health care decisions. These topics, as well as the more traditional areas of estate planning, have been marked in recent years by rapid changes resulting from decisions of the U.S. Supreme Court and the high courts of many states, as well as federal and state legislative innovations.

Advance Planning is Key

Court dockets are full of sad tales that are the result of a lack of advance planning. Infuriating and costly court battles, unnecessarily excessive taxes, confusion about what the individual wanted to happen and, ultimately, frustration of the individual’s desires — that is, having the individual’s property pass to persons other than the intended beneficiaries — are common results where estate planning has been ignored.

This section clarifies the sometimes mystifying terms of art used by this branch of the law.

  • The estate planning process in general.
  • Why estate planning is important.
  • Planning for retirement.
  • Pensions and other retirement plans.
  • Special issues for business owners.
  • Planning for succession or sale of the business.
  • Various types of property ownership.
  • Estate, gift and income tax considerations.
  • Wills, trusts and probate.
  • Estate planning with life insurance.
  • Retirement planning with life insurance.
  • Living wills and health care directives.
  • Medicaid, Medicare and long-term care issues.

The tax consequences of all of these subjects are analyzed. Various planning ideas, tools and techniques are described, together with detailed discussion of a number of specialized types of trusts and life insurance. Relevant forms and checklists are included, which can be used to help you formulate and communicate the various estate planning issues.

Wills and Trusts

There is hardly anyone who should not engage in some degree of estate planning. Traditionally, estate planning has focused on drafting wills and using other tools to divide one’s property among his beneficiaries while attempting to minimize estate taxes and other monetary costs associated with death.

Modern estate planning goes beyond the traditional limits. The economic well being of the entire family must be considered, including competing interests — for example, in the case of multiple marriages with children from each. Insuring the smooth, intact transmission of the family business or other wealth with a minimum of opportunities for discord is a prized goal.

Increasingly, estate planning includes provisions for the care of one’s property and body in case of extended illness or other incapacity.

Many people are reluctant to consider estate planning, either out of superstition or because it raises difficult emotional issues. Experience shows, however, that the instances of the most severe disruption to the economic and emotional well-being of the survivors are those where proper estate planning was neglected through inattention or a misguided belief that “everything will be worked out later.” As in many other areas, an ounce of prevention is worth a pound of cure.

The estate planning novice — as well as the experienced estate planner — will benefit from the plain-English guidance presented here. The sections that follow will put many of the obscure and arcane estate planning rules, regulations, common-sense advice and myths into perspective for both lay person and professional alike. In addition, the related forms and can be used by the estate planning advisor and his or her client to organize assets, personal finances, business plans, retirement plans, elder-care directives and estate plans in accordance with the advice presented.

What Is Estate Planning?

In its narrowest sense, an individual’s estate consists of the property owned at death. Estate planning, then, is simply taking the steps necessary to ensure that one’s assets are disposed of as he wishes.

In a somewhat broader sense, estate planning encompasses any disposition of property that will be in effect after death. This includes assets that are not literally owned by the individual at death—including joint property with right of survivorship, assets held in trust, trust bank accounts recognized under state law (so called statutory or “Totten” trusts), retirement accounts and pension plans and life insurance. In this sense, estate planning is concerned with the totality of wealth available to the individual and his beneficiaries.

Where the estate (in this broader meaning) is reasonably large, a primary concern is the amount of estate and similar taxes that will be due at death, and the best way to minimize or postpone their impact without unduly distorting the distribution of assets among beneficiaries.

In its broadest sense, estate planning includes all of the foregoing as well as a concern with how the individual can maintain a reasonable degree of autonomy and control over personal medical decisions, as well as management of assets, during a period of physical or mental incapacity.

It also includes techniques to reduce taxes or modify dispositions applicable after death, so-called post-mortem estate planning. This section views estate planning in its broadest sense.

The Importance of Estate Planning

Proper Estate Planning can:

  • Minimize much of the cost and delays that often accompany death or incapacity.
  • Assure the beneficiaries of sufficient cash flow to maintain their standard of living, insofar as possible, when the breadwinner and asset manager is no longer able to do so.
  • Reduce or defer near-confiscatory taxes imposed at or as a result of death.
  • Provide incentives for family cooperation and disincentives for those inclined to challenge the estate plan.
  • Tailor the resources available to each beneficiary to his own needs and abilities.
  • Avoid conflict over who will control the family business or other assets when you cannot do so.
  • Provide tax-advantaged funds for future generations, while retaining the flexibility to adjust the plans if circumstances change.
  • Make maximum tax use of charitable plans.
  • Retain control over critical medical decisions, and select who will make those decisions, even after incapacity.
  • Avoid disruption of your tax planning, gifts and legacies by the claims of a surviving spouse, ex-spouse or others.
  • Avoid the need for a forced sale of your business or other assets in order to raise cash for taxes or other expenses.

Tax Consequences

Although the focus here is not taxes, per se, but because much of estate planning involves tax-avoidance strategies, and because the tax laws are constantly changing, your estate plan must be reviewed periodically, and strategies amended or new techniques employed to address the changing tax and general financial environment.

Tax ramifications, therefore, are among the major considerations in planning your estate. Tax considerations can color every decision you make, from what to do with your business to who should own your life insurance policies.

Federal Estate Tax

Federal estate taxes can take a sizable bite out of your estate. Nevertheless, properly devised estate-planning strategies can reduce your eventual federal estate tax. You should recognize that changes in the federal estate tax regulations may necessitate the revision of your current estate plans.

What is Probate?

The term “probate” can refer to the (usually) short process of simply having a will officially accepted by the court after death, so that the executor named in the will can carry out the directives of the will. The term, however, is often used to represent the entire process of the transfer of assets from a deceased individual to his heirs under the supervision of the probate courts including, on occasion, challenges to the will and several years of estate tax audits or litigation.

Challenge to Will

The popular usage of the term “probate” recognizes that there are often challenges to the will. If the will is challenged or contested, there could be a period of months or even years during which the actual division of the estate is uncertain. During this time, the court will usually appoint someone (referred to as a preliminary executor, temporary administrator or administrator ad litem) to safeguard the estate assets and pay necessary expenses and taxes, postponing the division of the assets until after resolution of the will contest.

Avoiding Probate

Through various legal devices, most importantly an “inter vivos” or living trust, you can arrange your affairs so that at your death there are no assets or property in your own name. The result will be no need for a will and hence no probate in the narrowest sense.

Much has been written in the popular press urging everyone to avoid probate. The pros and cons of this question can make for lively debate. But, briefly stated, in some circumstances avoiding probate may indeed be helpful, while for many a will and probate are often necessary and usually beneficial.

Disposition Of Property At Death

Questions often arise regarding the treatment of the decedent’s co-ownership of property with another at the time of death, when such co-ownership is not held as a tenant-in-common interest but instead includes a right of survivorship.

Types of Property Ownership

Joint interest. The first and most common type of joint ownership with survivorship rights is that of property owned jointly by the decedent and his spouse. The general rule is that half of the value of property jointly owned is included in the estate of the predeceased tenant, in the case of a qualified joint interest.

This “qualified joint interest” is defined as an interest where the co-owners are husband and wife and there is a right of survivorship. Thus, with respect to such interest, it does not matter who provided the consideration or in what proportion it was provided, but half of the value of the property is included in the first spouse’s gross estate where it may qualify for a marital deduction (and, of course, assuming that the second spouse still owns the property at his subsequent death, 100 percent of the value of the property will be in his gross estate).

These rules apply to three specific types of property interests:

  1. Joint tenancies. This is a joint tenancy where property is held by the decedent and others as “joint tenants with the right of survivorship.”
  2. Tenancies by the entirety. This is a joint tenancy (usually in real estate property) with the right of survivorship in which the only tenants are husband and wife. This will always be subject to the rule discussed, where half of the value will be includable in the gross estate of the first to die.
  3. Joint bank accounts. This is a joint tenancy where the deposit is paid either to co-owners or to the survivor of two owners.

How do you know whether your joint property includes survivorship or which of the categories of ownership applies?

Check the deed, bank statement or other basic documentation. For example, many states have detailed rules about when joint ownership results in a survivorship feature, depending on who the owners are, the type of asset, when it was acquired, with whose money and other factors.

Intestate Succession

What happens if you ignore estate planning? Intestate succession — the law (usually state law)—determines who will receive estate possessions.

Historically property passed automatically upon death to designated relatives. Depending upon the country, land might pass exclusively to the oldest son, or perhaps be divided among the sons to the exclusion of daughters, with certain income rights for surviving spouses.

Gradually, the right to dispose of property by will was added by statute, and subject to certain restrictions (and “Family Considerations”) an individual in the U.S. can now freely dispose of her property as she wishes. (Many foreign nations, however, retain substantial restrictions on what is sometimes called the “freedom of testation.”)


What happens if someone dies without a will or with a will that does not dispose of all of their property?

To that extent, the property will be governed by the rules of intestate succession, which vary from state to state. Here is a summary of the most common results.

Generally, these rules provide that certain items of modest value will pass to members of the family, typically spouse and/or children. These “exempt” items may include a small amount of cash, basic farm and home implements and, in some states, the family residence. (These rules may apply whether or not there is a will.)

All assets beyond the “exempt” minimum, in the absence of a will, are divided among the surviving family members. Typically, a percentage (one-half or one-third) will go to the surviving spouse, with the balance to be divided among surviving children.

If a child has predeceased, the grandchildren may take a share, and if there are no descendants, the property may pass to parents, siblings, or nieces and nephews according to a statutory formula. If any share would pass under these provisions to a minor, that share would likely be held by a court-appointed guardian subject to strict restrictions on investment and disbursement — and ongoing court supervision of the family business if any part of it passes to the minor.

Costs of Intestacy

The intestacy statutes are almost certain not to match your wishes. Although they may generally provide rough justice, they are not tailored to the specific needs of beneficiaries.

Moreover, they can lead to substantially increased tax and administration costs, as well as cumbersome and complex investment and distribution requirements.

What Should Your Goals Be

In the course of thinking about many of the specific issues outlined above, you should have certain goals in mind, including:

  • Achieving a fair distribution of your wealth among the intended beneficiaries.
  • Avoiding costly disputes among beneficiaries and with disappointed would-be heirs.
  • Minimizing the possible estate tax and other costs of transferring property at death.
  • Making sure that the estate and beneficiaries will have sufficient liquid funds to meet the cash needs for possible estate taxes and other expenses.
  • Assuring smooth transition of management of property in case of catastrophic illness or death.
  • Selecting fiduciaries (executors, trustees, etc.) who will be capable and honest, and who will in turn be able to select their own replacements, if necessary.

When To Address Estate Planning

The temptation to procrastinate, especially in estate planning, can be overwhelming. It should be resisted to the utmost.

Everyone has stories of friends, relatives, colleagues or clients who waited just a little too long to meet with their lawyer or sign their will, with a chaotic result that cost the survivors substantial amounts of aggravation and money. The estate planning process should not be rushed, but it must not be delayed.

Major Changes in Life

It is important to implement, and subsequently review, an estate plan upon the occurrence of major life-cycle changes, including marriage, divorce, birth or adoption of children and the death of parents or siblings. In response to these events, you may wish to change the identity of the individuals who should benefit from (or administer) the estate or perhaps shift proportions of the estate that should be allotted to each.

Financial Changes

Other major changes that should result in an automatic review of the estate plan include major changes in the nature or amount of assets. Certainly, receipt of a substantial inheritance falls in this category. Likewise, purchase or sale of a residence or other major asset, a major change in a job or business enterprise, the purchase or sale of a business and retirement are all events that may have a serious impact on the estate plan.

There are events that may change the legal environment that governs estates. A move from one state to another, or a change in the relative amounts of time spent in homes in more than one state, may subject a particular estate to different rules. Similarly, both state and federal law governing estates, trusts and related taxes change frequently. For those reasons, it is advisable to review the estate plan regularly—certainly no less than once every five years, and possibly as frequently as once a year, in the case of substantial wealth or complexity.

Post-Mortem Planning

Although most estate planning techniques must be adopted during life — and sometimes work best if you live for years after adopting them — others can be effective after death.

For example, you can disclaim or renounce a legacy and, if you follow the requirements of the Internal Revenue Code, as well as the state probate rules, the legacy (or the part disclaimed) will pass to another beneficiary without being treated as a gift.

What Information To Gather

What Information to Gather is a checklist that details the items that clients should gather, organize and bring with them to preliminary meetings with their professional advisors.

  • Prepare a family tree for yourself and your spouse (if any). The family tree should go back to grandparents for each of you and include all descendants of all grandparents now living. Full names should be used, together with dates of birth and, if any have died, dates of death. This may be a formidable task, but once it has been completed a single time it will need to be updated only to reflect births, deaths, marriages and divorces. See Form Family Tree.
  • Identify any beneficiaries who are adopted, non-marital, stepchildren or half-siblings. This will be a great aid to identification and avoid potential problems after your death. Make it clear how you wish to have those relationships treated. (See discussion in “Family & Business” below.) If there are any beneficiaries whose relationship is through a non-spousal but long-lasting personal relationship, it may be helpful to identify that relationship to avoid later confusion. See Form Special Relationship.
  • Identify any beneficiaries who may have special needs by reason of emotional, physical or mental disabilities or through inexperience or inability to deal responsibly with financial matters. You will then focus on ways to protect these beneficiaries with your advisors, using some of the devices described elsewhere in this book. See Form Special Needs.
  • Prepare a formal or informal balance sheet of your assets and liabilities. Be as specific as possible, listing addresses for all real estate and the exact name of any illiquid investments in partnerships or other business enterprises. Show who owns each life insurance policy or list the beneficiaries of life insurance and pension or other retirement plan. Marketable securities such as stocks and bonds can generally be lumped together. You should indicate the approximate value of each asset (or group of assets) and liability. If you are married, indicate who owns which assets (if the ownership is joint, try to be specific as to the nature of the joint property, as described above). See Forms Balance Sheet and Special Property.
  • Assemble copies of deeds to any real property, including condominiums, as well as stock certificates and proprietary leases for cooperative apartments. Include title papers for boats and motor vehicles of any substantial value. Make a copy of the personal articles floater to your homeowners insurance. If you have invoices to show exactly who owns valuable jewelry, paintings or antiques, bring them as well.
  • Review and copy all life insurance policies, assignments, beneficiary designations and any trust agreements that you have set up or under which you are either a beneficiary or a trustee. Include copies of wills under which you are a beneficiary, executor or trustee.
  • If you are a party to any stockholders’ or shareholders’ agreements or partnership agreements, review and copy them. Similarly, review and copy any buy/sell agreements, split dollar insurance agreements and similar arrangements.
  • If you have any estate planning summaries or memos from a prior occasion, they may prove to be helpful. Also, bring a copy of your current will if you have one.

Estate Planning At-A-Glance

  1. Estate planning is essential for everyone who has any significant assets.
  2. The time to plan is now.
  3. The probate process should not be “avoided” by everyone.
  4. Distribution of an estate depends not just on the will, but also on joint property declarations, living trust documents, insurance policies and other papers that must be coordinated as part of the estate planning process.
  5. Taxes are pervasive and, in a large estate, the government can be the major beneficiary. Careful planning must address tax issues.
  6. If you do not plan for death or incapacity, when they occur the law will impose its own solutions—solutions you may not like.
  7. The better prepared the testator is to discuss estate matters, the better (and more efficient) the professional advisor will be.

Frequently Asked Estate Planning Questions

  1. What is estate planning and why is it important?
  2. What is probate and what property does it affect?
  3. How can one “avoid probate” and is it recommended?
  4. What happens to property at death?
  5. What is intestacy?
  6. What should my estate planning goal be?
  7. When should one begin addressing estate planning issues?
  8. What kinds of information must the testator provide to estate planners?

Forms and Checklists

  1. Family Tree
  2. Balance Sheet
  3. Special Property
  4. Special Relationships
  5. Special Needs
  6. Specific Legacies
  7. Form What Information to Gather

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