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WHAT IS ESTATE PLANNING?
An individual’s estate is
comprised of all that he or she owns. Consequently, an
individual’s conscious choices to acquire, sell, or retain
various property during one’s lifetime affects his or her estate
upon death. Accordingly, the individual naturally desires to
control how these items are distributed following his or her
death. Estate planning is the process by which an
individual (i) identifies objectives he or she wishes to
accomplish during life and upon death, and (ii) employs various
instruments, such as a Last Will and Testament, a Revocable
Trust, an Irrevocable Trust, Power of Attorneys, and
an Advanced Medical Directive in order to achieve those
objectives. Three main objectives most individuals strive to
achieve through estate planning are (i) distributing assets,
(ii) protecting loved ones, and (iii) avoiding undue expenses.
Distribution of Assets
An estate plan can transfer
assets to the intended beneficiaries during an individual’s
lifetime or following his or her death. An individual can employ
various Trust instruments or gifts to facilitate the
transfer while the individual is living, as well as using a Last
Will and Testament or a Testamentary Trust to convey
property following death. Each type of transfer has different
tax effects, privacy considerations, and legal requirements, and
should be reviewed in light of an individual’s objectives in
order to determine which method, or combination of methods, is
most beneficial.
Protection of Loved Ones
In many instances, those left
behind when an individual dies mourn their loss while struggling
to ascertain what the individual would have wanted to happen to
his or her estate. Likewise, those acting on behalf of an ill or
incapacitated individual face similar dilemmas. Decisions
regarding the care and property of another individual are often
difficult, emotionally-charged, and in the absence of direction
from the individual, can lead to familial discord. In addition,
there are also expenses to be borne, such as those associated
with an extended illness, personal expenses, and eventually,
funeral-related expenses which must be paid. An estate plan
provides for these situations by communicating to loved ones an
individual’s desires regarding medical care, property
distribution, and payment of final expenses, thereby alleviating
the uncertainty and added distress an individual’s loved ones
would otherwise face.
Avoiding Undue Expense
Estate planning can minimize
expenses in a number of ways; it can reduce estate taxes,
probate taxes, and administrative costs. Certain trust
instruments effectuate a completed transfer during the
individual’s lifetime, and assets titled in such trusts are not
subject to probate, and avoid probate taxes. Likewise, certain
trust instruments remove the assets from the individual
permanently, with the result that assets titled in such trusts
are not included in the individual’s estate for any tax
purposes. Generally speaking, more planning by an individual
during his or her lifetime translates into less confusion,
delay, and expense than would otherwise befall an individual’s
representative following the individual’s death.
WHAT HAPPENS IN THE ABSENCE OF
PLANNING
If an individual does not
communicate his or her wishes in a legally recognizable form,
the Commonwealth of Virginia provides how and to whom property
will be distributed following the individual’s death. This
distributive scheme is mandatory for everyone, regardless of
circumstances, and may have undesirable implications. Even if
every member of an individual’s family knows how the estate
should be distributed, if no legally operable instrument exists,
the individual’s property is distributed according to the
procedures set forth in the Virginia Code. |
