Estate Planning Processes
Are you willing to give up control of your power to make decisions and control your assets? If not, then a little proactive estate planning is all it takes to avoid the problem. Don’t assume that the process is too complicated to start, as it’s just a function of organization and establishing priorities. To do otherwise leaves your family and property subject to government planning, which may not meet your needs or expectations.
First, take inventory of your assets by using a computerized spreadsheet or even a low-tech legal pad. List everything of value, including real and personal property, cash, investments, life insurance and retirement plans, business and farm ownership, accounts receivable, art and any collections that have value. Begin by identifying the individual asset’s characteristics:
· fair market value
· percent annual appreciation and projected income potential
· how it is legally owned (individually as husband or wife, joint with rights of survivorship, tenants in common, etc.)
· how easily converted it is to cash
· whether or not it should be passed to a specific heir
Once all of the assets have been listed, total their values. (Illinois has eliminated its inheritance tax, so if your estate is less than the applicable exclusion amount ($675,000 in 2000 and 2001) and not likely to grow beyond that amount, don’t worry about federal or Illinois estate taxes.) However, just because there’s no tax due, it doesn’t mean that serious planning still isn’t needed. Smaller estates can’t afford to lose property unnecessarily anymore than larger estates can, and there are a lot of ways to lose value besides taxes. Estates are eroded by final expenses, funeral costs, appraisals, bonds, administrative bills, legal fees and accounting charges. The American Association of Retired Persons (AARP) polled its membership and concluded that these costs averaged about 7% of the typical gross estate. Even 7% is a significant loss, but still considerably less than the federal estate tax burden.
For families with potential for estate tax problems, there are many solutions that offer relief and may completely zero out any taxes due. However, if your estate value is greater than $675,000, then estate tax liabilities may be troublesome for your heirs and even the biggest estates nearly all have liquidity problems. Married couples may be able to shelter $1.35 million from tax exposure, but special planning must occur for those savings to take effect, and that requires input from your legal, tax and financial advisors.
Second, choose how family decision making processes should continue in the event of your disability or death. Even an absence on a prolonged trip may require addressing some of these same concerns, so estate planning helps before death as well as afterwards. Wills, trusts, powers of attorney and estate plans don’t have to be set in concrete, as flexible design allows for changes in family needs, economic conditions and personal priorities. Too many people think estate planning requires decisions that must continue in place forever, so they delay doing anything for fear of making an irrevocable error. As Karin Ireland noted -- "Waiting until everything is perfect before making a move is like waiting to start a trip until all the traffic lights are green." In reality, the planning process can be broken into manageable components. As you work through the problems, the blueprint can be further adapted as needed. Getting 90% of the problems fixed now beats doing nothing, and waiting for the perfect solution to present itself is foolish. Your heirs will suffer the consequences of any indecision on your part and nothing will ever be solved.
Since doing nothing or having a simple will plan forces most estates into the probate system, that generates unnecessary costs and delays. A good system to avoid, the probate process incurs expenses, delays and needless publicity that makes it unattractive for many families. As an alternative, the revocable inter-vivos or living trust has become a popular planning tool for individuals wishing to avoid probate, and there other mechanisms that accomplish this goal as well.
Some of the most productive time a family can spend may be with their estate planning team to maintain control and options. Significant savings for nearly all estates make proactive planning a good investment, and the emotional security of knowing things are in good shape is priceless. Don’t procrastinate and be one of the 70% of the U.S. population without a 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 planning tools, consult with your professional 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: September 3, 2000
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