Estate Planning is More Than Just Tax Planning

by Amelia Siroky


By Ramona Johnson, CPA

Many people think estate planning is not necessary, that it is only for those of us that are getting older or those fortunate enough to be extremely wealthy. But the truth is, many more could benefit from having an estate plan in place, even a simple one. And, while no one likes to think about their death, it is inevitable, which makes planning and knowing the decisions related to what will happen with your assets so very important.

What is an estate plan?
Estate planning is making a plan for all the property you own (your estate) upon your death. This could include finances, cars, houses, land retirement, investments and so on.

A quality estate plan ensures your estate will transferred to who is supposed to receive it (your beneficiaries). It also looks at how to properly minimize the tax burden that comes with the transfer of property or wealth.

Unsure how wealth planning applies to your business? Here are a few tips and tricks on wealth planning for business owners.READ MORE

Estate planning begins with preparation
Estate building is a process in which a person’s wealth is amassed. Estate planning is more about keeping what has been built to use or to pass on to future generations, while taking legal, personal, and tax implications into consideration.

Typical goals within the estate planning process include:

  • minimizing transfer taxes and costs
  • maximizing net assets
  • protecting assets to enjoy life and maintain your standard of living
  • fulfilling personal and charitable wishes regarding asset disposition, particularly upon death.

Overall, the process of estate planning can be broken down into three main steps:

  1. Identify how you want your assets to be handled prior to or upon death
  2. Identify how you want your beneficiaries to receive their inheritance
  3. Look for options to reduce any potential estate tax liability

Key Components to Consider in Estate Planning
Preparation of a Will 
One of the more important steps in the estate planning process is to have a will prepared. A will is especially beneficial for dealing with solely-owned assets, children under age 18 or extraordinary health issues. If you do not have a valid will when you pass away, your estate is considered intestate. This means the distribution of your assets is left up to the rules established by the state of domicile, or the state in which you lived and paid taxes.

Unfortunately, a majority of people will die without a valid will, which causes unnecessary stress and burden on the remaining family members, both emotionally and financially.

A will controls the distribution of assets that do not pass directly to a beneficiary through a beneficiary designation, joint tenancy or any other ownership structure that directs how the property is transferred at death. Probate is the legal and public process for handling the transfer of assets. Your probate estate typically includes solely-owned assets such as real estate, brokerage/cash accounts, and personal property.

When planning the information to be contained in a will, it is important to outline four main points:

  • Who is receiving the property?
  • When will the property be distributed?
  • Will any trusts be created? If so, what are the terms?
  • Who will administer your probate estate (personal representative) or any trusts that are created (trustee)? Who will be the guardian of any children?

Revocable Living Trust
Another document that can be used to control the distribution of your assets is a Revocable Living Trust (RLT). A RLT can be a very flexible document. First it can be fully funded during your lifetime which means that the RLT becomes the owner of all property that does not have a beneficiary designation.

You can keep control of the RLT assets by serving as trustee and you have the ability to change provisions or revoke the trust if you so choose, so long as you are competent to make changes. The RLT will become irrevocable upon your death; therefore, make sure the distribution and operational decisions contained in an RLT are kept current.

The probate process is avoided at your death if the RLT owns all your assets. This can be beneficial for a few reasons, including privacy (it is not a public document for inquiring minds to read), ease of asset management, and perhaps costs savings since there is no probate, including ancillary probate if property is owned in another state.

A RLT is also used as a means to determining how your property is distributed after you pass away. With this alternative, the RLT may own some of your property, but not all property at your date of death. If stated in your will, the probate process may be used to transfer assets not held in the RLT to “pour-over” into the RLT. As a result, the RLT provisions will control the operation and distribution of all assets at your death, rather than the will. The RLT agreement may be part of the estate plan and is available to fund at any time. 

Power of Attorney
Another consideration for your estate planning includes powers of attorney—both financial and health care. A financial power of attorney allows your appointee to handle your financial affairs if you are unable to do so. Your appointee is given permission to act entirely on your behalf, so it’s important to choose someone who is trustworthy and good with finances. Banks or trust companies can be named for the financial power of attorney in place of an individual, but these companies will typically charge a fee for this service.

A health care power of attorney allows your designee to make any and all medical decisions if you are unable to make your own decisions. The health care power of attorney typically includes provisions for your living will or advanced medical directive. This means it’s incredibly important to appoint someone you trust, and to discuss or write down your wishes prior to anything happening. This discussion can include a declaration of your wishes regarding the use of life-sustaining medical treatment in the event you are unable to express your wishes. Note that a living will only applies to decisions regarding terminal illness or incident, and what is considered “terminal” is typically defined by the state of residence. 

Not sure where to begin? Here are 10 Common Questions to consider when estate planning.LEARN MORE

The Role of an Advisor in Your Estate and Exit Plan
When considering wealth transfers, particularly those that include exit planning, clients report feeling stress about pending changes, loss of control, and sometimes concerns about their own mortality. An effective wealth transfer plan should address these emotional considerations.

As you plan for the transfer of your wealth, take the time to consider your emotions. With your emotional input, an advisor can provide you with ideas that are economically effective and tax efficient. The advisor will help identify and implement your personal, charitable and business goals and objectives. Settle for nothing less when choosing your advisor team.

An advisor can help you:

  • Analyze your cash flow needs to determine how much of your wealth is required for you to live the lifestyle you wish for as long as you live. Conservative assumptions will be used so you have assurance you will not outlive your wealth, even while making desired current wealth transfers.
  • Review your life insurance needs for liquidity or other needs and also determine if your existing policies are efficient and will still accomplish your objectives. Life insurance mortality underwriting changes; therefore, it is not uncommon to discover that you can exchange your current insurance for a new policy with more coverage for the same price or the same coverage for a lower premium. Also, as you age, life insurance premiums will likely increase, but life insurance needs may decrease, suggesting a rebalancing of coverage and premiums. It makes sense to explore these options every few years.
  • Revise your estate planning documents to take into account your changing life circumstances and the changing laws.

Start Planning Today with Your Estate
Regardless of the size of your estate, the objectives and questions asked within an estate plan are critical as you prepare for your financial future, and that of your beneficiaries.

The transfer of your wealth to your successors is one of the most important processes in your life, even if your estate is not large enough to pay estate tax. Do not let economics or taxes totally drive the show. Trust your advisor, let them assist you as you implement an economically effective and tax efficient plan that is built on a framework that meets your overall personal, charitable, and business goals.

By looking at your wealth and where you want to go early and often, you can better plan for the future, and protect your legacy for years to come. 

Eide Bailly Can Help

The team at Eide Bailly welcomes the opportunity to help you consider whether you are ready to exit your operation and to create a succession plan that works for you. They will work with you every step of the way, navigating the financial, emotional and tax considerations—all with your goals and objectives in mind. Visit to learn more.

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