Estate Planning is a term that is sometimes misinterpreted. However, the true meaning of the term involves a comprehensive effort to examine the assets owned by an individual or married couple, consider their objectives for dividing assets at death, and minimize the taxes paid as a result of either one or both of them.
- The type of assets
- Personal desires regarding division of the assets
- Tax considerations
All three must be considered to ensure that an individual or married couple's desires are effectively accomplished at death.
While estate planning has traditionally involved a well-drafted Will to lay out someone's desires for their estates, it also involves the use of various trusts, annual gifting programs, and family limited partnerships as tools for estate planning. Following is a brief discussion of the topics we have covered on this website:
- Estate and Gift Taxes
In many cases, tax considerations drive much of the estate planning process. Many clients feel strongly that the money they have worked hard to accumulate during their lifetimes should go to their children or descendants, rather than being paid to the government as taxes.
Estate and Gift Taxes are taxes imposed on the transfer of wealth from one generation to another, either during life or at death.
- Family Limited Partnerships
A family limited partnership is a fairly complex estate planning tool which involves the members of a family creating a business entity to hold and manage the assets owned by the family.
In combination with the joint management of the assets, the older generations of the family will generally give away part of their share of the business over time, which allows them the opportunity to make larger tax-free gifts for purposes of the gift tax.
- Non-Probate Transfers
In recent years, the proliferation of non-probate transfers has complicated traditional estate planning. These transfers refer to:
- Life Insurance
- Retirement Plans
- Joint Tenancy Accounts
- Payable on Death Accounts
The money from each of these vehicles is paid out to a beneficiary upon the owner's death pursuant to the provisions of a beneficiary designation card. Because these assets pass according to that beneficiary designation, they pass completely outside of the parameters of the Will.
Many times, these transfers can have unintended consequences and should be carefully coordinated with the Will and other assets.
- Traditional Estate Planning v. Revocable Trust Planning
In recent years, Texas has seen somewhat of a battle between traditional estate planning methods and those methods that would favor the use of a Revocable Trust as the mechanism for controlling the distribution of someone's estate at the time of death.
Please review more in-depth information behind each of these two methods, Traditional Estate Planning and Revocable Trust Planning, which highlights the similarities and differences between the two methods.
- Coordinating the Estate Plan
Coordination of the various estate planning tools being used in someone's estate and the various types of assets owned in the estate is extremely important. Because one of the fundamental goals of estate planning is the desire to minimize estate taxes, the coordination of the tax-savings provisions with the various distribution provisions and types of assets can have a significant impact on the effectiveness of the elements of a particular person's estate plan.
In addition to the topics covered in this Estate Planning Information Center, it is important to note that proper estate planning also includes:
- Powers of Attorney for Finances and Healthcare
- May also include a Living Will giving your doctor instructions in the event you need life support
As we have discussed more fully in other sections of this site, powers of attorney are used to allow you to designate another person or persons to make medical and financial decisions for you in the event that you are alive but unable to make those decisions for you.
Although the powers of attorney cease to be effective once someone dies, they are critical to have in place if something happens causing incapacity prior to death.
As discussed more completely in our Guardianship Information Center, the failure to have proper powers of attorney in place when someone becomes incapacitated means that the Probate Court must step in and appoint someone to serve as the Guardian and make decisions for the incapacitated person.
The guardianship process is very expensive and difficult to navigate. That expense and difficulty can be avoided with simple powers of attorney.