Introduction to Estate Planning

Estate Planning:

What is it and why do we do it?

You spend your entire life creating wealth. The more wealth you create the more unhappy the people you leave behind will be without the proper estate planning. Estate planning allows you to decide while you are alive how your assets will be distributed. It also allows you to protect your heirs from unanticipated devastating expenses ranging from debts to taxes to administrative fees.

Court and probate records show 75% of all estates do not have the necessary cash to pay for these expenses. Heirs are forced to quickly liquidate assets such as homes and businesses to pay these expenses, often at a fraction of their real value. If people didn't care about taking care of loved ones after they're gone, no one would bother completing an estate plan.

Our discussion will explore:

  • Wills
  • Executors
  • Probate
  • Estate Taxes
  • Trusts
  • Life Insurance

The material presented on our web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice, you may wish to consult a competent attorney, tax advisor, or accountant.


Everyone who is concerned how their assets will be divided should at the very least have a current and valid will.

The will should:

  • Provide a description of your assets.
  • Provide for the distribution of your assets to your heirs.
  • Name an executor.
  • Name a guardian for your children.

Wills are simple to create. Though you should always have it done by a qualified attorney, many courts have accepted simple handwritten wills drawn up without any legal counsel. Some states even accept oral wills.

Wills may be simple, but after death, they become a public document once they are entered into court. They instruct the court of your wishes. A will can be contested and it is up to the court to decide validity. Legal counsel may help you avoid many of the pitfalls associated with wills, especially in the area of contestability.

After death, wills must be brought before the courts. This process is called probate. This process could take from 9 months to 2 years or longer, and could cost 2% and sometimes up to 5% of the entire estate.

If the value of an individual's assets are high enough to be subject to estate taxes, wills do not help with estate taxes.


In most instances, when a person dies owning property of any real value, it is necessary to appoint someone to administer the estate. That someone could be an individual close to the deceased, a bank or trust. That individual who acts for, or "stands in the shoes of," the deceased is called the personal representative. If the personal representative is named in a will and the will is accepted as valid that person is known as the executor.

To carry out the administration of the estate, the executor is responsible for:

    • Contacting the funeral director, cemetery and clergy to make burial and funeral arrangements.
    • Notifying relatives, friends, employer, post office, insurance agents, civic organizations, veteran organizations, newspapers, attorney and accountant.
    • Collecting all documents and important information related to the deceased:

      1. Will
      2. Death Certificate
      3. Birth Certificate
      4. Marriage Certificate
      5. Social Security Number
      6. Citizenship Papers
      7.Insurance Policies
      8. Bank Accounts
      9. Deeds
      10. Leases
      11. Car Titles
      12. Income Tax Returns
      13. Veteran Discharge Papers
      14. Disability Claims
      15. Unpaid Bills
      16. Property Tax Bills
      17. Credit Card Information

  • Depending on the value and complexities of the estate, hire lawyers, accountants, appraisers and if there is a business involved the necessary people to keep it going.
  • Filing the necessary tax returns and paying the appropriate estate, federal and state income taxes and paying all debts and expenses.
  • Distribute assets in accordance with the will.


Probate is a legal process where your executor goes before a court and:

  • Identifies the property in the estate.
  • Has the assets appraised.
  • Pays all debts and taxes.
  • Proves the will is valid.
  • Distributes the assets according to the will
The pitfalls of probate:
  • Time consuming. It could get bogged down in the busy courts and take a year or two, while your heirs wait.
  • Costly. If the estate consist of non-cash assets such as real property, art, coins, or long term bonds they will need to be sold to pay for probate costs. That involves appraisal fees, additional delays and selling property you intended for your heirs. Plus, often that property is sold below market value.
  • Multiple probate. If property is in more than one state, each state requires separate probate proceedings.
Can probate be avoided?
  • Probate is not necessary if all of a person's assets will pass automatically under joint ownership.
  • Probate may not be necessary if the only asset is life insurance payable to a beneficiary.
  • Probate is not necessary for assets that have a beneficiary designation such as IRA's, and employee benefits such as pension plans or profit sharing plans.
  • Assets placed in a trust usually do not have to be probated because the assets are payable to named beneficiaries.

Estate Taxes

The federal estate tax, initially adopted by Congress in 1916, is a tax on the right to transfer property at death. The Tax Reform Act of 1976 revised the federal estate tax to be a tax based on the value of all property and rights to property possessed by a decedent at his death or transferred by him by gift during his lifetime.


  • Unlimited Martial Deduction: Property transferred at death from one spouse to another is excluded from estate taxes.

  • Annual Exclusion: An individual can gift any number of other individuals $14,000 (in 2014 & 2015) each year without incurring a transfer tax.

  • Unified (Lifetime) Credit: Each person is allowed lifetime credit. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001), signed into law by President Bush on June 7, 2001, repealed the estate tax for one year. Under that law, the federal estate tax continues, but with increasing unified credits and decreasing top estate tax rates, until 2010 when it was repealed for one year. Subsequently in 2011 Congress reinstated the estate tax with a top tax rate of 35% and a $5 million exemption equivalent indexed for inflation. and subsequent to that Congress raised the top rate to 40% for taxable amounts over $1 million.

2014 & 2015 Estate & Gift Taxes
For Deaths/Gifts
If Taxable Estate Is: Of the
Amount >
Over But Not > The Tax Is:
$0 $10,000 $0 + 18% $0
10,000 20,000 1,800 + 20% 10,000
20,000 40,000 3,800 + 22% 20,000
40,000 60,000 8,200 + 24% 40,000
60,000 80,000 13,000 + 26% 60,000
80,000 100,000 18,200 + 28% 80,000
100,000 150,000 23,800 + 30% 100,000
150,000 250,000 38,800 + 32% 150,000
250,000 500,000 70,800 + 34% 250,000
500,000 750,000 155,800 + 37% 500,000
750,000 1,000,000 248,300 + 39% 750,000
1,000,000+ -- 345,800 + 40% 1,000,000
Subtract applicable credit below from calculated tax
Exclusion Amount Applicable Credit
2014 5,340,000 2,081,800
2015 5,430,000 2,117,800
Annual Gift Tax Exclusion: $14,000 in 2014 & 2015


A trust is the holding of property and the equitable management of that property by one person (a trustee) for another person (a beneficiary). The person who transfers property into a trust is called a grantor. A Living Trust is called a Living Trust simply because it is created while you are alive. In most Living Trusts the grantors (Husband and Wife) are also the trustees.

Almost anything can be placed in a trust: bank accounts, stocks, bonds, real estate, personal property, and life insurance. Once the trust is established, assets can be placed into the trust by simply changing the name or title of the asset. If constructed properly the grantor can still maintain full control of the assets.

  • Living Trusts avoid probate. Because a trust is recognized as a separate legal entity, distributions are made by a Trustee to named beneficiaries without any court involvement.
  • Keeps the details of the estate private.
  • Gives the grantors (Husband and Wife) full control of their assets while they are alive and competent.
  • Allows assets to be distributed quickly upon death.
  • A Living Trust arranges for a successor trustee to manage the assets should the Grantor trustee become incapacitated.
  • A Living Trust is difficult to contest.
  • A Living Trust with "A-B Provisions" effectively doubles the standard estate tax deduction for married couples.

Life Insurance

Life Insurance can provide much needed cash to pay for fees and taxes and also allow for an easier distribution of all assets.

  • Life insurance proceeds at death are passed to the beneficiary income tax free.

Life insurance proceeds at death add to the value of the estate and therefore are subject to estate taxes. This can be avoided by having someone other than the insured own the insurance policy. This can be accomplished in two ways:

1. The children of the insured can own the policy.

2. An irrevocable life insurance trust can be created and funded by life insurance. The trust is irrevocable because the insured (Grantor) cannot have any rights or powers over the trust and no incidence of ownership over the life insurance policy.

© Copyright 

Print   Email