For those of you who think that Estate Planning is only for the rich and famous or those with large estates, nothing could be further from the truth. The reality of the matter is that everyone needs to do some estate planning from simple to complex.

The reason is most people came into this world with nothing but will leave this world with assets that need to be appropriately distributed for the benefit of those the asset owner chooses to help or continue to care for.

Although we will keep this Estate Planning guide very general, we will encourage you to use this as a basis for the understanding of some of the issues involved. It is meant to encourage you to take action. Knowledge without action is useless. Wisdom is the proper application of knowledge to create the best means for the best ends. Estate planning is simply wisdom in action.

Why everyone needs an Estate Plan

The main reason you need an estate plan is to make sure that your desires and wishes are set into motion and fulfilled after you pass away. It is a loving action to benefit those people you care about the most or to make sure that those entities that you want to benefit do in fact get the benefit.

The other reason has to do with federal and state laws and regulations that pertain to estates. Currently, the federal estate tax is $5.49 million for individuals and $10.98 million for married couples. This could be changed at any time by an act of Congress, as it has in the past.

However, various states have different laws that can put an extra burden on families that are not the same across all fifty states. Again, state legislators can change their estate tax laws by their own acts. In addition, take note that an estate tax is not the same as an inheritance tax.

Estate taxes are paid by the deceased person’s estate before distribution to the heirs. Inheritance taxes are paid by the beneficiary after distributions. This is important to understand.

Trusts and Wills

The quickest way to deplete your estate after your passing is to allow it to go through probate court. That basically means that you did not care enough to plan for your loved ones so the courts and the lawyers decide. There is no need for that!

Here are the most important things to understand. You will lose control of your assets if you only do nothing, just have a will, keep most assets in Joint Ownership or obviously by simply giving them away to someone else or a charity. The only real place to keep control of your assets and your life is with a well thought out and implemented “Revocable Living Trust”.

The basic concept of a trust is that it is an entity set up by a grantor who owns assets or property and places them into to the ownership of the trust, managed by a trustee for the benefit of beneficiaries. The basic idea is that you create a legal entity that in concept does not die, it has perpetuity.

People die, Trusts do not, and they only become dissolved by living people who are involved in the trust. So transferring ownership of your assets to be included in a trust is the first step in Estate Planning no matter how much your estate is worth. You still control everything as a trustee.


There are many advantages to doing this, including asset protection against creditors. The basic thought is to control everything in your life, but do not necessarily own it. There are many types of trusts, but for the sake of this short guide we will discuss only a “Revocable Living Trust”.

A basic well put together revocable living trust will have the following sections to it.

  • Trust documentation
  • Durable Financial Power of Attorney
  • Durable Medical Power of Attorney
  • Last Will and Testament
  • Pour-Over Will
  • Addendums
  • Lists of assets owned by the trust and those not owned by the trust

These are the basic and most important sections of the revocable living trust. This is a complex document and it is important that you work with professionals when creating this document.

First of all, make sure that you work with an attorney who specializes in estate planning and trusts. Secondly, bring in your financial advisor as that person has information regarding your investment accounts. The third person is your tax advisor or CPA. These individuals need to work together to create the best trust for you and your family.

Estate Planning Guide

Role of Life Insurance

One of the most important but probably the most misunderstood financial tools in our society is the role that Life Insurance has in Estate Planning. Most people tend to see life insurance as simply a death benefit that helps their loved ones if they die. As a result, they do not see the benefits of permanent insurance so they spend more than necessary on term insurance throughout their lives.

Estate planning also involves the minimization of the depletion on the value of your estate after you pass on. Both probate costs and tax costs are the biggest estate depletion costs to hit your estate. In fact, it could devastate your beneficiaries if not properly planned for. This is where life insurance can resolve most this burden.

The idea is that of leverage. Since death benefit proceeds go income tax-free to the beneficiaries, for a few premiums paid relative to the death benefit, it is an ultimate leverage tool. Keep in mind, the death benefit is included in the valuation of the estate, so it may have estate tax consequences.

If you had used life insurance properly you would already have had one or several permanent life insurance policies with some cash value build up. You could have used these policies to fund your children’s college or even fund your retirement with tax-free withdrawals. The point here is that you should be using the cash value during your lifetime to not shrink your assets due to retirement distributions.

Another use of life insurance for estate planning is using it as a hybrid product where it combines a death benefit and long-term care insurance into one policy. There are companies that offer this. If you happen to need long-term care, then this policy will minimize estate depletion to pay for it. Upon your death, the policy will pay out the residual death benefit.

Another use for life insurance is the Irrevocable Life Insurance Trust (ILIT). If your estate is larger than the federal estate tax exemption amount, making a trust the owner of the insurance policy will reduce or eliminate the estate tax on the life insurance death benefit proceeds.

In this case, you will give up control of the policy however you can still pay the premiums to the trustee of the trust. You would make sure that the premiums do not exceed the gift tax limits and that you do not die within 3 years after you establish the ILIT.

Just understand that life insurance is a leverage tool that can be enjoyed while you are alive using permanent insurance with cash value buildup and used to assist those loved ones or even charities with an income tax-free and possibly estate tax-free or reduction in tax burden benefit.

What about retirement accounts

Retirement accounts are unique assets that include IRA, 403B, 401k, non-qualified annuities and even Roth IRA’s. With the exception of the Roth IRA, these all had tax-deferred growth in the account. This means that upon withdrawal, you will have to pay income tax on the distribution at whatever tax bracket the owner is at for that year.

Just because you happen to pass away does not mean that the federal and state governments do not still want their revenue from these accounts. They want every penny of it. As these are assets, it begs the question as to whether these should be owned by a trust. The answer is no, well sort of.

You cannot name your trust as the owner of a retirement account if you are still alive. You can, however, name the trust as the beneficiary of the account. The trustee will then execute the distribution with the dictates of the trust. Keep in mind that with retirement accounts, there is a 5-year distribution rule that has to be followed to the beneficiary, even to the trust.

This has some advantages, but it could be detrimental in the case of a spouse inheriting the retirement account. The spouse can inherit the account and not have the 5-year distribution requirement. If the trust is the beneficiary instead of the spouse, it could force distribution at a much more accelerated rate than desired.

Estate planning guide

What about cost basis?

Cost basis is a term used regarding the cost it took to acquire an asset. It is not just the original purchase price but can include additional cost to maintain the asset. When a person sells an asset, like a house or investment property or even a stock or bond, there is a capital gains tax on the difference between its current value and the cost value.

However, when a person dies, there is what is known as a step-up in basis. This means that the asset is valued at the fair market value on the day of the owner’s death and that is the new cost basis for the heirs. This does simplify things to some degree.

For example, if Bill purchased an investment house for $100,000 and kept it for 20 years and the house was now valued at $210,000. If he sold it, then he would have capital gains tax on the difference of $110,000. However, if he died before he could sell it, the new cost basis for the beneficiaries would be $210,000. So they do not owe the capital gains tax.

However, keep in mind, that the investment property would be added to the estate value by the $210,000 for the purpose of the estate tax. This is important to understand and important to get to the fair market value numbers on all property valuations on the date of death as quickly as possible.

It is also important to know these numbers for investment portfolios, such as stocks and bonds and even personal residence. If the estate is to be distributed among many beneficiaries, this is important. So part of good estate planning is to keep a current record of the fair market value at least once a quarter of all of your holdings.

Beneficiary options

One of the most ignored concerns when it comes to estate planning is that of naming beneficiaries. On the surface, this seems like a simple task. You name your spouse or your children or grandchildren, right? Well, problems come when life changes and your current spouse is not your named beneficiary due to divorce and remarriage.

Maybe your children are now adults and do not need your inheritance in the same way that they needed it when they were minors. There is also the issue of by-passing a generation to the grandchildren. In one case that I saw as an advisor, the wording on the trust itself created a scenario that was not the wishes of the grantor.

It had to do with the wording in the trust as to who died first if it could not be determined. This would be in the case of a catastrophic accident. There were biological and stepchildren involved and this could have created a huge problem.

The point here is that when it comes to estate planning, having a beneficiary review on your trust, your retirement accounts and so forth is just good planning. Here are a few terms you will need to understand.

Intestate has to do with what happens to your estate if you die without a will. The laws of each state then will apply when it comes to property distribution. Any property located outside the state that the deceased lived in will be handled by the laws of the state where the property is located.

As you can see, technically everyone has a will. You either have your will that you created, or you have the will that the state you live in created for you. You and your family may not like the state’s version. So making sure your beneficiaries receive what you intended is paramount to you creating your estate planning.

Per Stirpes is a term where each branch of a decedent’s family is to receive an equal share of the estate. This goes down a family tree to children, grandchildren, and great-grandchildren. It is important to understand that spouses are not part of the per stirpes distribution.

The lifetime spousal exclusion rule basically states that spouses receive the inheritance of their spouse, with or without a will. This is an exclusion of smaller estates worth less than the exclusion amount for couples. It has some complications with it and again needs to be addressed with a well-qualified estate planning attorney.

Estate planning guide
Africa Studio/

Role of Taxes on Estates

The question of why are there estate taxes in the first place comes to mind. The answer is that the federal government is taxing your right to transfer assets from yourself to your beneficiaries upon your death. Since you are no longer around to fight it, it is not that difficult for the federal government to collect it.

However, there is one other possibility and that is wealth re-distribution. It is possible, that without the estate tax, after a few generations, most of the wealth in the country would be controlled by a few families. One can argue that has already taken place, but the reality is that anyone with determination in America can become quite wealthy.

So the estate tax is most likely to stay with us for many years to come. At this point it does not matter if you agree with it or not, it is part of the US Tax code. You have to implement legal ways to minimize it if you want to maximize the value to your beneficiaries.

This quick Estate Planning guide was not meant to answer all your questions. The laws and regulations surrounding Estate Planning are complex and are applied to each family’s unique situation. We have tried to cover the very basic with the understanding that you will seek professional guidance from an estate planning attorney, your financial advisor, your insurance advisor and your CPA.

They work for you. Surround yourself with their expertise. It is your estate, so protect it.

iTo the best of our knowledge the information here is accurate and reliable. However, we are not giving legal advice, Insurance advice, tax advice or estate planning advice. We encourage you to take this information as a beginning point to seek professional advice from a qualified attorney, tax professional, and financial advisor.