The careful planning of an estate can serve to avoid unnecessary taxation and expense and, very importantly, assure that the desired distribution of assets will be carried out accurately and efficiently.
Where minor children are involved, careful thought should be given to the appointment of guardians for the person of the child and to the appropriate method of distributing assets to the child or held for his/her benefit. Custodial accounts may be utilized until the child reaches age 21, or trusts may be established to provide for the administration of assets for the child’s benefit until a later age.
Many clients consider the use of a revocable living trust for the purpose of avoiding probate and adding flexibility to the administration of their estates during their lifetime. A common misunderstanding is that a living trust avoids death taxes; in fact, that is not the case. However, the living trust may contain a plan which will serve to avoid death tax, particularly when husband and wife are creating estate plans jointly. However, such provisions can be included in a properly drafted will as well. The trust will avoid probate with regard to the assets which are properly included therein, whereas assets passing under a will are subjected to the process of probate.
A will or trust may also address payment of estate taxes. Moreover, a married couple, planning together, can arrange their affairs so that, between them, they may pass twice the value of assets tax-free to the next generation than one individual might do acting alone.
The proper designation of beneficiaries for life insurance, annuities, and retirement plans is a very important component of estate planning. Typically, the applications for these contracts or accounts include beneficiary designation forms. Careful planning is required in the completion of the beneficiary forms to avoid misdirection of benefits or the inadvertent failure to take advantage of tax and probate avoidance opportunities. Your primary will or trust will not control the distribution of such assets unless the completed form specifically so designates, or one fails to designate beneficiaries. It is very important to ensure that the beneficiary designation forms complement your will or trust, rather than working at cross purposes.
Estate planning also should involve the preparation of durable general powers of attorney and medical directives. The primary purpose of these documents is to designate substitute decision-makers in the event you become unable to manage your affairs during your lifetime or make informed medical decisions. The medical directive may include a “living will” to address questions about end-of-life medical and support measures.
Wills, trusts, powers of attorney, and medical directives are important legal documents that require thoughtful planning. While many of estate planning documents have standard legal wording,“one size fits all” documents usually fail to meet an individual's needs fully and accurately.
The foregoing article contains general legal information only and is not intended to convey legal advice.
Daniel D. Smith and W. Franklin Pugh are partners in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176 (703-777-6084, www.smithpugh.com).