The Value of Proper Estate Planning

Posted By: Manish C. Bhatia

> Reducing the estate tax and administration burden on your family during a difficult time is an invaluable benefit of proper estate planning.

> An incomplete estate plan can lead to extensive legal costs and permanently strained relationships.

> The burdens of failing to plan far outweigh the costs of proper estate planning.

The purposes of estate planning are very simple—to reflect your wishes clearly and accurately while avoiding unnecessary costs and conflict. While your wishes may seem obvious and your estate may seem modest, your family and state and federal governments will likely disagree. The value of an estate plan that serves your needs and goals is not immediately evident since it does not affect your day-to-day life—the goal is to be prepared for the unpredictable—but when compared to the alternatives, the value should be easy to recognize.

Probate and Taxes

Informing someone that their estate will be subject to probate or estate tax is not a good feeling, but the value of proper estate planning lies in being able to work through solutions to reduce the likelihood of probate or burden of taxes. Your estate planning attorney should explain to you what will happen under your current estate plan, whether it consists of a Will, Trust or no planning at all. If this is not consistent with your wishes, then available solutions should be discussed to achieve your goals. Unfortunately, this can include battling perceptions, political arguments and misinformation based on media reports and articles that may not apply to your jurisdiction or family situation.

The costs and time required to probate an estate can be significant.[1] Additionally, the estate may be subject to government processes that make it far more difficult than necessary for the decedent’s loved ones to access assets. In most cases, probate can be avoided through proper planning. On the other hand, while taxes cannot always be avoided, the value of proper estate planning arises from the reduction of the tax burden and preparation for the estate to be able to pay the taxes that will be due.

Political beliefs aside, a large taxable estate may have to liquidate assets in order to pay the estate tax, which is due within nine months of death. This is of particular concern when an estate consists of a closely-held business and few liquid assets.[2] Without an understanding of the potential tax liability and a proper estate plan in place, your family may be unnecessarily burdened by significant estate administration and tax bills. The value of having a proper estate plan in place so that your family does not have to sell off the family business or other assets at an undesirable time is significant but may not be immediately recognizable or appreciated.

Reducing the Likelihood of Conflict and Exposure

One of the most common misconceptions in estate planning is that one’s family situation is simple. Unforeseen issues that are not addressed in a document can lead to extensive legal costs and permanently strained relationships. Whether motivated by an individual outside of the family or financial hardship, leaving decisions to be made by family members or loose ends in an estate plan rarely benefits the family. Common examples of this are cases of second marriages, unequal distributions to children or failing to address how items of personal property are to be distributed. Additionally, an incomplete estate plan can expose your children’s inheritances to divorce, bankruptcy or other liabilities.

By creating a comprehensive estate plan and when appropriate, utilizing a third-party trustee to oversee the administration of your Trust, you can protect your family from these threats. The value of a proper estate plan that will preserve not only your assets but also your family’s relationships is something that may be incalculable now, but may be invaluable in the future.

It Starts With Trust

Relying on your estate planning attorney is essential to having a functioning, effective estate plan that serves your needs. While, due to the nature of tax and transfer laws, there are legal and practical obstacles to be navigated, by having an open, continuing relationship with your estate planning attorney, you can ensure that you are maximizing the value provided through proper estate planning.

[1] Please see Probate—What It Is and How to Avoid It for further discussion.

[2] Please see Mind Your Business Interests for additional discussion.