Setting Goals in Your Estate Plan

Failing to stabilize and protect estate values is one of the classic errors in most estate plans. Avoid this situation by consulting your tax, financial and legal advisors.

Most people put off estate planning because they do not want to make unpleasant decisions or errors. They view the process as too complicated and so they do nothing. Since the government has already established a default blueprint, why go through the effort? If they want what is best for the family, then these matters are best handled while they have the opportunity to control the process and enforce their wishes. Their goals should include:

Resolving guardianship issues for minor children or, more frequently seen today, continuing the care of elderly and dependent parents

Establishing priorities

Gathering legal, personal, tax and financial documents in an organized fashion and making them easily available when needed

Improving management options of the estate in the event of your absence

Avoiding family conflict and future ill-will

Minimizing expense, delay and publicity of the probate process

Stipulating who will operate the business and handle family affairs during a disability or after death

Eliminating unnecessary income and estate taxes

Providing adequate liquidity to pay final expenses and taxes

Passing assets to heirs as planned, under conditions that best that meet family needs and their abilities to effectively manage an inheritance

Typically the biggest shortcoming is providing for estate liquidity. All too often, a lot of cash is needed to take care of repaying debts, the funeral and expenses associated with any final illness. In addition to these obligations, the survivor may have income needs and ongoing family expenses that may include education and relocation. If there are business interests or significant assets involved, there may also be federal and state estate taxes to pay. Even if there are not estate transfer taxes, there are nearly always property taxes, payroll taxes or federal and state income tax payments due.

Specific bequests to heirs or charities may also generate a need for extra liquidity. If there is an ongoing business, it must be maintained or sold. In either case, capital will be required to keep the business or farm operating until the heirs or new owners can decide how to best continue it.

Further drains on estate resources are the funds needed for legal, tax, accounting and appraisal fees associated with the probate or estate settlement process. The national average for these clearance costs has been variously estimated at 6 to 7.2 percent of the gross estate. Whatever the number, for many families this is a significant expense and liquid assets should be available to offset those costs as well.

As long as the majority of estates lack sufficient liquidity to pay their settlement costs, solutions are limited. Marketable assets sold under pressure are usually the most valuable; but, with a little forethought, this tragedy could be avoided. Unhappily, most administrators wind up selling illiquid assets at a steep discount to pay expenses. As a result, the family loses both the asset and the income it should have generated. Good planning can provide alternatives to the forced sale of assets under unfavorable conditions. However, time is a big factor in settling many estates. Any transfer tax is due in just nine months and is based on the fair market value at death. By the time appraisals are done and bills are paid, tax time creeps up and the executor starts looking for quick sales to pay this penalty for success.

Failing to create an estate plan and revising it as family and economic conditions change set the estate up for problems. Besides the liquidity issues, failing to use approved tax saving strategies and improperly owning and coordinating life insurance are common mistakes. Flexible risk management should have your asset portfolio include insurance and emergency savings as well as investments. Other planning questions to answer deal with family business interests. Can it be or should it be sold? Is there a buyer? How can the asset be converted quickly for cash? Each family needs to resolve these issues before they are forced into bad decisions.

As with any estate planning activities, a competent and experienced team of advisors should be consulted. Since no one has a corner on good advice, it pays to have your team coordinate their efforts to present an integrated plan.

Vaughn Henry deals with planned giving programs and estate conservation, and is a member of the Central Illinois Planned Giving Council.

This information is for general education. For specific cases, consult your legal and tax advisors.

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Vaughn W. Henry
Henry & Associates
Gift and Estate Planning Services
22 Hyde Park
Springfield, IL 62703 USA
Phone: (217) 529-1958 Fax: (217) 529-1959
E-mail: VWHenry@aol.com

Last Updated: November 9, 1999
© Henry & Associates 1998, 1999

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