By Derrick Allen Brooks
When it comes to estate planning, what’s not done is often the biggest mistake made. Even people who should realize its importance often don’t have a plan in place. According to Nation’s Business (April 1999), 40 percent of 429 chief executives at fast-growing companies did not have an estate plan.
From psychological difficulties in facing one’s own mortality to the more mundane problem of simply finding the time, the reasons people avoid developing an estate plan are as diverse as the individuals themselves. Still, nearly everyone – from the wealthy to those of very modest means – can benefit from a well-designed plan.
Without any estate plan in place, federal and state laws dictate how property, personal items and assets are divided, with no regard to the individual’s wishes. Conflicts, due to family issues and legal problems often result, tying up the estate and slowing down the distribution of assets. Additional administrative services and taxes, which must be deducted from the estate, can also reduce its overall value.
While a Will often serves as its cornerstone, a true estate plan encompasses many more facets and presents a broader picture of your current estate and how it might look upon your death. Other documents, such as powers of attorney and health care powers, which specify who can act on your behalf in legal, financial and medical matters if you are unable to do so, often are included. All of this information can then be used to develop an estate plan that will serve as a road map, guiding you to the goals you would like to achieve.
In order to be truly effective, however, an estate plan needs to be well written. A few quick thoughts jotted on the back of an envelope will probably not be comprehensive enough to cover all the issues that need to be addressed. And, such a hastily written document might not even hold up in court.
Trusted professionals (e.g. an attorney, accountant and/or insurance agent) can help you develop a solid estate plan that will ensure quick and efficient distribution of your estate with a minimal amount of expenses.
Steps to Developing an Estate Plan
A four-step process often is used to develop a good estate plan:
1. Establish goals.
2. Determine needs.
3. Identify and quantify resources.
4. Develop a plan to meet these needs.
As a first step, you must establish the goals of your estate plan. These goals can cover any tangible item (e.g. who will receive your most coveted pieces of jewelry or the vacation home) as well as more complex issues, such as the care of a special needs dependent. If you own a business, you must also develop a succession plan if you would like the company to continue after your death.
Next, you must identify and quantify your needs. You can begin by totaling any income and deferred income, stocks, bonds and business interests, retirement plans, life insurance policies and other assets. Personal property also must be included. Review bank and brokerage account statements, life insurance policies and annuity contracts, real estate deeds and other such documents to determine legal ownership rights that could affect future transfers.
As the third stage in developing a plan, the amount of money needed to pay taxes, estate expenses and any current debts and expected debts are calculated and then subtracted from the total value of the estate. Resources that are liquid and could be used to pay some of the estate expenses are separated from those that are not.
After all this information has been assembled, a plan can be developed. Trusts, such as an irrevocable insurance trust, charitable and personal gifting and other techniques may be suggested as ways to minimize future expenses and help you preserve as much of your estate as possible for your heirs.
Once in place, an estate plan must be reviewed periodically. Major life changes such as divorce, remarriage, or death of a family member, might make it necessary to adapt the plan. But once the process is understood and the basic plan is in place, life is yours to enjoy.
Derrick Allen Brooks is a Financial Representative with the Northwestern Mutual Financial Network based in Okemos, MI for The Northwestern Mutual Life Insurance Co., Milwaukee, WI. For more information, please call 517-349-0260 ext. 122.
Printed in Volume 1 Issue 9