CHAPTER 11
Estate Planning
A man’s dying is more the survivor’s affair than his own.
Thomas Mann
Most people do not think of estate planning as a pleasant task. After all, it forces them to face their mortality. It is, however, a valuable and necessary task and can also be personally satisfying. Estate planning is not about the person doing the planning because they will not be around to know the difference. Instead, estate planning is a task done for family, heirs, and those who that person loves and cares about. An estate plan can be as simple as a will or involve a will, trusts, contracts, and named beneficiaries. It depends on how much the person owns and how complex their wants are.
People should probably dust off their estate plan every three to five years or whenever they have a significant life change. As their estate gets more valuable and complex, they will seek out lawyers who deal with estate planning issues. People often forget what they put into their plans. Circumstances also change quickly. Retirement savings or the value of the practice may have blossomed over the past several years. They may have had additional children, got divorced or remarried, received another inheritance, or changed their insurance significantly. All these can affect how a will and estate plan are structured.
PURPOSE OF ESTATE PLANNING
Planning an estate will accomplish several purposes.
TO BE SURE WHO GETS WHAT
A person may have a unique gold watch or Aunt Tillie’s flower vase that they want to go to a particular child. Although not trivial (in fact, these decisions are often the most contentious), the decision takes on added importance when significant amounts of money are involved. This money may be from assets owned, insurance policies, retirement plan proceeds, a practice sale, inheritances, or countless other sources. If a person correctly plans their estate, they will resolve conflicts, reduce squabbles between family members, and ensure that assets will be distributed the way they intend.
TO GIVE BENEFICIARIES PROTECTION AND GUIDANCE
The person doing the planning may be the primary source of family income and financial expertise. If they die, beneficiaries may need help managing family finances or other affairs. They may want to appoint a banker or other trusted advisor as the trustee until family members are old enough to manage their affairs. Through estate planning, they can ensure that beneficiaries are protected from fraudulent advisors and kept from squandering the money earmarked for a particular purpose.
TO PROVIDE FOR THE WELFARE OF MINOR CHILDREN
If someone has minor children, they have a particular estate planning problem. If the spouse is still alive, they will generally take care of any minor children. However, if both die (e.g. in an accident), the problem suddenly becomes enormous. Not only does the child or children have to cope with the parents’ deaths, but they also must forge new parental ties. A parent needs to ensure that someone will be the child’s or children’s guardian until they reach the age of majority when they can legally manage their affairs. If someone is not selected ahead of time, then the state will appoint someone. That may not be someone in whom the parent would have had trust or confidence. The person chosen needs to provide the emotional and financial guidance the parent would have customarily provided. (The potential guardian should be asked before being named.) Unmarried siblings or couples may not be the best choice if they are not tuned into raising children. Elderly parents may want the responsibility, but may not be physically able to parent children until the youngest child is 18. If a person is divorced, remarried, or part of a blended family, additional legal problems develop concerning visitation and support. The more that can be decided ahead of time, the more service will be provided for the family.
TO HELP GUIDE THE EXECUTOR (ADMINISTRATOR)
An executor (sometimes called the administrator or personal representative) is responsible for collecting information, paying bills and expenses, seeing that assets are appropriately distributed, and generally marshaling an estate through probate. Being an executor is a thankless job, and relatives and creditors try to influence the executor. In addition, there is much hard work to do, including selling assets, having other assets appraised, paying bills, closing credit cards and other accounts, and keeping everyone informed of the process. Executors can be paid (from the estate) for their work. The executor is named in the will. The estate planner should consider who would do these duties best and ask that person ahead of time.
TO ELIMINATE DELAYS AND THE EXPENSE OF PROBATE ADMINISTRATION
A probate court is responsible for seeing that estates are adequately distributed after someone’s death. Probate administration takes many months, or even years, to complete. This happens especially when the estate is not well planned. Lawyers then bicker over who gets what and who deserves which assets. A well‐planned estate reduces these delays and expenses. When the estate is in probate, the assets are essentially “locked up” until they are distributed. This can be a problem if family members or other heirs need that money. In this case, a person needs to provide sufficient liquid assets outside the probate process for their support. If a large portion of the estate assets is non‐liquid (not cash or near‐cash), then the estate may have to sell some crucial assets to pay the estate taxes. Many professional people have large estates that trigger significant estate taxes. Proper planning will reduce those taxes and allow the maximum amount for the heirs’ support and enjoyment.
TO PLAN FOR THE BUSINESS TRANSITION
If the person owns a dental practice or other business, they have another special estate planning problem. This problem is that the value of the practice drops quickly if the owner is not present seeing patients. An owner should have a plan for what would happen to the practice in case of death or disability. If they are in a group practice, they may have cross‐purchase agreements to cover the eventuality. If they are a solo practitioner, they should have an accountant or other trusted advisor with a plan for continuing and selling the practice. A spouse, significant other, executor, or agent should have enough information to deal with the practice immediately. Any delay can be financially devastating. Often the spouse does not even know how to get into the office, much less how to look for a buyer or sell the practice. This should be taken care of for their peace of mind and financial security (Box 11.1).
TO REDUCE ESTATE TAXES
Depending on the value of an estate, taxes can take a significant amount that might otherwise go to heirs. The estate pays any taxes that are due and then distributes the assets. Whoever receives the asset then receives it free of income tax because taxes have already been paid (by the estate). However, if the estate contains many non‐liquid assets (e.g. real estate), the estate may have to sell some of those critical assets to pay the estate taxes. Proper planning will reduce those taxes and allow the maximum amount to flow through to the heirs.
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