What Is Estate Planning?

Taking Control of Assets

In its simplest terms, an estate plan is nothing more than a set of instructions that clearly spell out how property should be managed during life and distributed at the estate owner’s death. Estate planning is a process that involves arranging assets (their ownership and their use) in ways that will help estate owners meet financial objectives in a tax-efficient manner during life while providing for survivors’ needs and the disposition of property at death.

A carefully implemented estate plan can:

  • Create and conserve assets during life
  • Minimize estate taxes and estate settlement costs
  • Ensure that cash is available to pay unavoidable taxes and costs
  • Provide for an orderly distribution of assets that meets the estate owner’s objectives and intentions
  • Protect a business and ensure its successful transfer
  • Provide peace of mind and family harmony

Have liberalized estate tax rules made estate planning irrelevant? Not according to the experts. In addition to the obvious benefits, an estate plan can:

  • Avoid conflict. The way assets pass to family members or other heirs can be complex. Clear documentation of an estate owner’s decisions concerning the distribution of assets can help avoid conflicts by minimizing the sting of unfulfilled expectations while ensuring that plans steer clear of unintended consequences.
  • Expedite settlement. By providing executors and administrators with a blueprint of wishes, an estate owner can considerably reduce the time required for estate settlement.
  • Shrink expenses. Written directives ensure efficient estate transfer, which can minimize expenses, conserve estate assets, and provide for an orderly distribution of the estate.
  • Realize philanthropic goals. Comprehensive estate planning allows for the fulfillment of charitable intentions if estate owners choose to distribute assets to personally meaningful organizations or institutions.

It is clear that estate planning is not just for the super-rich—after all, avoiding large estate tax bills is only one item on a long list of benefits. Instead, estate planning is important for anyone who needs to provide for loved ones or wants the opportunity to decide how their assets will be distributed after death. In other words—estate planning is for everyone!

Why Do So Many People Fail to Plan?

Study after study has shown that most Americans do not have an estate plan. In fact, more than half don’t even have the most basic document—a will. Why? Let’s look at the usual suspects:

  • Money. Many Americans have the misconception that estate planning is only for the wealthy. They may feel their assets are not substantial enough to justify the creation of an estate plan. These people are missing the opportunity to decide how their property will be distributed, who will serve as guardians for minor or disabled children, and which charities will receive bequests, along with many other important details.
  • Time. Let’s face it, people today lead busy lives. Even those who believe estate planning is important often procrastinate—especially business owners who face a multitude of urgent demands on their time day in and day out. The truth, of course, is that no matter how old we are, none of us can know what tomorrow will bring, or how much time we have left.
  • Aversion. Americans don’t like to think about or talk about death. Unfortunately, that often means we don’t like to plan for death, either. But the true focus of estate planning is certainly not death. Estate planning is taking care of ourselves today and arranging for the care and comfort of our loved ones tomorrow by carefully positioning assets to provide the greatest current and future benefit.
  • Difficulty. Some people avoid estate planning because they think it will be complex, but it doesn’t have to be. Even taking basic steps can have an enormous positive impact. It’s true that business owners also have to deal with transferring the business, which often involves difficult decisions. However, without planning, an estate may shrink, heirs may not be provided for, and a family business will likely not make it to the next generation. Without the minor difficulty of planning, family members will be left with the major difficulty of dealing with both the estate and the business.

Being the Boss

Business owners are used to being the boss. They are accustomed to working hard, making tough decisions, and taking action to achieve desired results. They are used to seeking out ways to save time and money and preparing for the unexpected.

This is what estate planning is all about, and it can be expressed in terms that business owners will readily understand. Yes, planning takes work. Yes, it might require some tough decisions. However, just like managing a business, achieving desired results takes action. Success requires a plan.

The effort spent in estate planning can save money by reducing taxes and estate costs. The time spent on estate planning now can save substantial time later (which equals administrative money) when it comes to identifying and preserving assets the business owner wants to pass on. Most importantly, estate planning provides an opportunity for the business owner to create a legacy by deciding who will inherit specific assets, especially the business interest.