How does “effective” Estate Planning really work?

There seems to be a lot of confusion about not just how Estate Planning works but why it works so well…when created the right way. Let me try to clear up some of the confusion for you with a live story about a couple that might have some similar issues to your own situation.

It starts with understanding what an effective Estate Plan really is and what it is designed to do for you and your loved ones. A very simple way to think about Estate Planning is to realize it isn’t about the documents…it’s about “why” you want to do certain things for your loved ones and “how” your assets should be distributed. The documents are merely the tools to make it all happen within the law. If you understand this, you are well on your way to creating something that will work for you and your loved ones.

Take, for example, the Taylor family. John and Jane Taylor (names changed to protect their privacy) have three grown children…Jim, Susan, and Bobby. Each of them has different needs and abilities. Jim is a doctor, but he has problems with opioid abuse and has serious asset protection concerns. Susan is responsible and has amassed a great deal of wealth in the stock market. Bobby is a responsible elementary school principal but is in a problematic marriage.

John and Jane love each of their children equally and one of the ways they can show their love for their children is by leaving their assets to them in a manner which will best help each child. Jim has asset protection concerns, so an outright distribution of assets would put those assets at risk. So we created a purely discretionary trust with a third-party trustee which will be much more beneficial to Jim today and well into the future.

Susan doesn’t have creditor risk, but could face a tax problem. So we constructed a plan for Susan that would leave her taxable assets in a trust that will remain outside of Susan’s taxable estate…thereby mitigating the potential tax issue. With a very customized design, she could even serve as trustee and make distributions to herself as needed for her health and support.

Bobby has neither creditor risk nor tax problems. John and Jane designed a plan where his shares of the assets are left in a trust over which Bobby has complete control and from which he can withdraw whenever he wants. By leaving assets to Bobby in this manner, they remain his separate assets and not marital assets in case he later divorces.

John and Jane want the best for their kids. By crafting a “customized Estate Plan” they were able to successfully demonstrate this to their children while meeting the individual needs of each child. This came after having some deep discussions and really understanding their wishes and desires. This is Estate Planning…this is focusing on the WHY and the HOW rather than the WHO and the WHAT. At the end of the day, both Jane and John had much more peace of mind and lowered the risks they were passing along to their children. And with this plan in place, it is now highly likely they will have No.More.Tears.

Hopefully this helps give you a better feel for what an “effective” Estate Plan is all about. Now take some time and think about your own life, your loved ones, and what you might have (or not have) in place to carry out the wishes and desires you have for them. If it’s not in alignment, investing some time to really understand the WHY and the HOW may be one of your best investments all year.