At a person’s demise, there are typical problems that can be avoided or reduced with proper planning.  If not, they can create a burden on those who are left behind.  The major objectives of estate planning are to maximize the estate left to the survivors and to minimize the tax burden.  Estate planning can address many of these issues before they become a problem.  Below are some issues to consider when designing an estate plan.

Financial Burdens

Estate settlement costs are too high:  These costs consist primarily of probate fees and death taxes.

• Probate fees:  These are generally paid to the executor of the estate and the attorney who assists with the probate.
• Death taxes:  Estates which exceed certain amounts may be subject to both state and federal death taxes.

Estate assets are improperly arranged:

• Liquidity:  There are not enough liquid (cash type) assets to pay estate settlement costs.
• Cash flow:  There is not enough income to care for loved ones left behind; e.g., spouse and minor children.

Transfer of Assets

• Estate assets may be subject to probate delays and expense.
• Assets transferred to minors may be in cumbersome guardianship accounts until they attain age 18 (or 21 in some states) and are then distributed outright to the children.
• Additional death taxes may be paid because there was no pre-death planning.
• Assets may have to be sold in order to settle estate taxes.

Care of Minors

• Guardians:  Parents can nominate a guardian for their minor children in a will.
• Asset Management:  If the wrong persons are chosen to manage the assets left for the minors, the assets may be lost or unnecessarily reduced.

Estate planning can also address the potential problems of:

• Providing estate liquidity.  Can estate settlement cost be paid from liquid assets?  If there are not sufficient liquid assets, will valuable assets have to be sold at a price below their market value just to raise cash?
• Providing sufficient income for the surviving spouse and children.
• Providing for college education.
• Having all estate assets be subject to the expense and delay of probate.
• Having to pay additional Federal and State death taxes because estate planning was not done before death.
• Providing proper care for minor children and competent management of assets.

At death, taxes and fees usually must be paid, in cash, within 9 months.  Federal and State death taxes usually apply to taxable estates larger than $3.5 million in 2010.  In addition, executor, attorney, accountant and probate fees can be a substantial expense to an estate.

At Northern Financial Management we have the experience and knowledge to help you, along with your attorney, develop a comprehensive estate plan.  Call or email us for more information.

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The above information is general in nature and is not intended as legal or tax advice.  Along with our help, you should seek the advice of an attorney for your estate planning needs.