Estate Planning

The first step in the estate planning process typically involves gathering data about the properties owned, how they are owned, and their value. Then the objectives of the estate owner need to be clarified, conflicts between competing objectives recognized, and priorities established. The various available techniques for accomplishing these specific objectives need to be considered, as oftentimes there will be more than one alternative technique available and the techniques that are most likely to accomplish the estate owner's objectives should be selected. Once a plan of action is selected, it needs to be implemented, and after implementation, it should be reviewed periodically and revised, if necessary. Whenever there is a major change in a family or a change in ownership of property, it is important to review the estate plan.

Property transfers and estate planning. Anyone who owns property may transfer it during their lifetime by either sale or gift. A gift is a transfer in exchange for nothing in return or for less than the full value of the gifted property. Any person can also declare their intent to give property to individuals or organizations upon their death by making a will. A will identifies who will receive the assets in an estate. It may also be used to accomplish other estate planning objectives, such as naming a guardian for minor children. A will must conform to legal formalities established by the law of the state in which it will be administered. Wills should be reviewed regularly and updated periodically.

Will substitutes. Certain types of property interests transfer at death by operation of law, by contractual arrangement, or by trust. A will is powerless to affect the transfer of these assets, and these forms of transfer take precedence over transfers by will. As a group, all property interests that have their own built-in transfer mechanism at death are called will substitutes. Examples of will substitutes are property owned in joint tenancy with the right of survivorship; individual retirement accounts (IRAs) that transfer property, by contractual agreement, to a named beneficiary other than the decedent's estate, and revocable living trusts. Federal law protects a surviving spouse's interests in a deceased spouse's qualified retirement benefits, except for IRAs, even when the surviving spouse is not the named beneficiary. Assets that are will substitutes bypass the formal estate administration processes established by state laws. As a result, will substitutes can be used to accomplish objectives such as reducing estate administration costs, increasing privacy, and making a quicker and easier transfer to intended heirs.

Intestacy. Property that is not transferred at death by either a will substitute or a valid will transfers according to state intestacy laws. A person is said to die intestate when they die without leaving a valid will. State intestacy laws set forth a plan for how assets transfer to heirs that are not transferred by will or will substitute. Typically, intestacy laws provide for distribution of a portion of estate assets, first to a surviving spouse, then to surviving children, and grandchildren, then to parents, then to other blood relatives, and finally to the state if there are no surviving blood relatives.

Probate. The property and intestacy laws of the state in which a decedent is domiciled or, if it is real estate, in the state in which the property is located control the estate administration process. A domicile is a person's permanent residence. Probate refers specifically to the process whereby a will is admitted to court (to prove the authenticity of the will) or a deceased person is determined to have died without a will. Probate is usually handled in the local county court system. The term probate is also widely used to refer to the entire estate administration process. The probate court appoints someone to handle the affairs of the deceased; to inventory the assets of the deceased person; to have the value of those assets appraised; to pay the debts of the decedent; to file any income, gift, or estate tax returns due from the estate; to pay any taxes owed by the estate; to distribute the remaining property according to the terms of the will or as state intestacy law dictates; and to file a final accounting with the probate court.

Community property. Nine U.S. states are community property states. The nine states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Spouses who acquire property while residing in a community property state are deemed to own the property in equal shares, regardless of who paid for the property or whose names are on the document of title. Spouses who move either in or out of a community property state may need to consider the implications for estate planning, as community property retains it character even when spouses move out of a community property state.

Limited interests in property. For added flexibility in estate planning, ownership of assets may be carved up into limited interests. One example is a life estate, where a life tenant receives use of the property and any income from the property for life, but other individuals, called remainder persons, own a future interest in the property.