Articles

WHAT IS ESTATE PLANNING?

An individual’s estate is comprised of that which he or she owns, and, in some cases, property in which he or she has an interest short of full ownership.  Consequently, an individual’s conscious choices to acquire, sell, or retain various property during one’s lifetime affects the composition of his or her estate at death.  Individuals naturally desire to control how their assets are distributed following death.  Estate planning is the process by which an individual identifies objectives he or she wishes to accomplish during life and upon death, and employs various instruments, such as a Last Will and Testament (the “Will”), an inter vivos revocable trust, an irrevocable trust, power of attorney instruments, and an advance medical directive, in order to achieve those objectives.  Three main objectives most individuals strive to achieve through estate planning are the (i) distribution of assets, (ii) protection of loved ones, and (iii) avoidance of undue expenses.

Distribution of Assets

Estate planning may involve the transfer of assets to the intended beneficiaries during an individual’s lifetime or following his or her death.  An individual may employ various gifting techniques to transfer assets outright while he or she is living, or an individual may choose to transfer assets upon his or her death, such as through a Will.  In addition, an individual may set up one or more trusts which provide for the transfer of assets either during life or at death (or at some time after death).  One should consider the different tax effects, privacy considerations, and legal requirements of each type of transfer in order to determine which method, or combination of methods, is appropriate to achieve his or her estate planning objectives.

Protection of Loved Ones

In many instances where suitable estate planning has not been completed, those left behind when an individual dies not only mourn the decedent’s loss, but also struggle to ascertain how to properly administer and distribute the estate.  Likewise, those acting on behalf of an ill or incapacitated individual face similar issues.  Decisions regarding the care and property of another individual are often difficult, emotionally-charged, and in the absence of direction from the individual, can lead to familial discord.  In addition, there are also expenses to be borne, such as those associated with an extended illness, personal expenses, and eventually, funeral-related expenses which must be paid.  Estate planning enables an individual to clearly set forth the desires of such individual with regard to medical care, payment of expenses, and property distributions, thereby alleviating the uncertainty and added distress an individual’s loved ones would otherwise face.

Avoidance of Undue Expenses

Estate planning can minimize expenses in a number of ways, including reducing estate taxes, probate taxes, and administrative costs.  Certain trust instruments effectuate a completed transfer during the individual’s lifetime, and assets titled in such trusts are not subject to probate, and avoid probate taxes altogether.  Likewise, certain trust instruments remove the assets from the individual permanently, with the result that assets titled in such trusts are not included in the individual’s estate for any tax purposes.  Generally, more planning by an individual during his or her lifetime will result in less delay and expense as well as fewer issues for the individual’s personal representative during administration.

WHAT HAPPENS IN THE ABSENCE OF ESTATE PLANNING?

If an individual does not communicate his or her wishes in a legally recognizable form, such as in a Will or trust, the laws of the Commonwealth of Virginia provide how and to whom property will be distributed following the individual’s death.  This distributive scheme is mandatory for everyone, regardless of circumstances, and may be contrary to the decedent’s personal preferences.  Even if every member of an individual’s family knows how the individual would have wanted his or her estate to be distributed, the individual’s property is distributed in accordance with the procedures set forth in the laws of the Commonwealth of Virginia if no legally operable instrument exists.

© 2010 GANDERSON LAW, P.C.