What is Estate Planning?

A. The process of planning the accumulation, conservation, and distribution of an estate in the manner which most efficiently and effectively accomplishes your personal tax and nontax objectives. Every estate is planned – either by you or by the state and federal governments.

B. “Controlled estate planning” is a systematic process for uncovering problems and providing solutions in clients’ L.I.V.E.S.: Planners should use this L.I.V.E.S. acronym to illustrate the seven major areas of estate planning and emphasize the significance and urgency of action to solve them.

Lack of liquidity: Insufficient cash to pay administrative costs, taxes and other estate settlement expenses. A lack of liquidity can trigger a forced sale and result in the loss of an estate’s most precious assets at pennies on the dollar.

Improper disposition of assets: When the wrong asset goes at the wrong time to the wrong person in the wrong manner, the result is often disaster. For example, picture the proceeds of $100,000 of group insurance or a $500,000 pension plan being paid to a 21 year old child.

Inflation (need to diversify and “inflation-proof” portfolio): Many individuals have placed all their financial eggs in one basket or have not considered the diminished and diminishing purchasing power of life insurance adequate only four or five years ago. The ravages of inflation and risk of placing all of a client’s family financial security in one investment (or business) must be factored into the estate plan.

Inadequate income or capital at retirement/death/disability: Planners and clients often forget that cash demands for survivors’ food, clothing, shelter, and schooling often will exhaust the funds that would otherwise be available for estate liquidity needs – and vice versa.

Value – need to stabilize and maximize value of business and other assets: Clients who own businesses should build key employee protection into their plans, establish “golden handcuffs” to retain key employees and attract new ones, and use their businesses to solve personal financial problems.

Excessive transfer costs: Simply put, many clients’ families will pay a severe- and needless price- for the inaction of senior family members.

Special problems: Clients must not overlook the extreme importance of planning for the spouse or child who can not, should not, or does not want to handle a family business or large investment portfolio, or for a handicapped spouse or child. The desire to give back to, enrich, and support charity is also a strong planning need.

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