EXPLORING THE IMPORTANCE OF ESTATE PLANNING

There are several basic questions to ask when considering an estate plan: Who will inherit assets? Who will act as guardian for minor children (if relevant)? Who should make medical decisions for an incapacitated person? Who will handle the financial decisions for an incapacitated person?

An estate plan, in its simplest form, is a last will and testament. The value of an estate plan is that a person is able to determine what will happen to their assets and to minor children. If someone dies without a will, this is referred to as being "intestate." Intestate means that the courts will decide what happens to any assets (not to mention minor children).

What should happen to assets?

Many individuals have strong feelings about what they would like to have happen with their homes, vehicles, property, jewelry, or valuables, as well as with their liquid assets such as securities in taxable accounts or retirement plans. If a person has a desire to leave specific assets to certain individuals or charitable organizations, it is critical that these wishes are expressed in a will rather than simply conveying the message verbally to loved ones. While loved ones may carry out wishes, sometimes confusion, family conflicts, or misunderstandings occur; a will allows a person to express these wishes in a way that is legally binding.

Who will make health care or financial decisions if the worst occurs?

In a bit more complicated form, an estate plan also includes provisions for what should occur in the event that a person is incapacitated and unable to handle their affairs. Durable powers of attorney for health or financial matters make it possible to name a trusted representative who can act if an individual is unable to make decisions on their own. A person can stipulate their desires regarding medical measures to be taken, as well as any details about care. For financial matters, a person can appoint a representative and give them the legal ability to manage assets, access records, pay bills, or otherwise handle monetary affairs.

How should Federal estate tax and transferring assets be handled?

Finally, more advanced estate planning allows a person to put further conditions on how and when assets will be distributed upon their death. Depending on the size of the estate, heirs may end up with a Federal estate tax bill. In 2008, the amount that could be left to heirs free of Federal estate tax is $2 million (this amount will increase to $3.5 million in 2009, at which time the amount may revert to pre-2001 levels or Federal estate tax laws may be revisited). Certain techniques allow an individual to either reduce their estate or transfer assets to heirs or charitable organizations, thereby minimizing the amount of Federal estate tax due to heirs.

An estate attorney can help examine a person's estate and determine which techniques or methods of reducing or transferring an estate might be helpful or appropriate to help meet specific goals. Various types of trusts exist for different situations (too many and too complicated to address in this short column).

In short, creating an estate plan is an important part of overall financial planning. A will, powers of attorney, and various estate planning techniques can help determine and legally state wishes for the disposition of financial assets. Isn't it better to make these important financial decisions rather than leave it to chance or someone else?

Mr. Koch may be reached directly at jkoch@rubino.com or by calling 301.564.3636. For more information about Rubino & McGeehin, please visit www.rubino.com.