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Estate Planning Basics: When, Why, and How

Estate Planning Basics: When, Why, and How

Everyone has an estate and should have a plan in place to protect their assets and family when they are unable to. If you don’t have an estate plan, it’s important to create one today, and that plan should be in writing.

In this article, we will discuss the basics of estate planning and what you need to know now and in the future.

What is an Estate?

Your estate is the net sum of everything you own. It includes your physical assets such as your home, real estate, business interests, and personal property. It’s your investments, individual stocks and bonds, mutual funds, and retirement accounts. Your estate also includes intangible items such as digital assets.

When calculating your gross estate, the IRS says the death benefit, in many circumstances, includes life insurance. This could be impactful when determining if your estate is subject to an estate tax or not. Your estate can also include part interest in joint accounts that you own with your spouse or someone else. And it’s even your debt obligations.

What is Estate Planning?

Estate planning is the process of outlining in advance the people or organizations who will receive your assets and the management of how those assets will be received. It is also your opportunity to establish your wishes for how and by whom your minor children might be cared for. Estate planning can also include the care of your pets when you pass or become incapacitated.

Why is Estate Planning Important?

Simply, estate planning is important because we want to make sure we provide for those that we love after our death. We want to make sure our charitable interests are taken care of, and our estate is distributed according to our wishes.

Even before we die, estate planning incorporates asset protection. We want to ensure that, not only during our life but for future generations, our estate is protected. If you’re a business owner, you want to make sure the transition of the company is handed off in a seamless manner. We want to make sure we minimize taxes because no one should pay more taxes than they’re required to. Hopefully, we avoid probate so that we don’t incur additional costs beyond taxes such as court and legal fees that may be associated with probate.

It is also extremely important that we make sure, even before we pass, that if there is incapacity that there are those we’ve designated who can help make decisions for us, whether that be financially or for medical purposes.

Stages in Life

Over 18

Incapacity can strike at any time so you will want to make sure that if something happens to you and you can’t make decisions on your own, you have a durable power of attorney (also known as a financial power of attorney) and a medical power of attorney. These documents are the first estate planning documents to be drafted in a person’s lifetime.

Young and Single

In this life stage, you may not own a lot of assets but perhaps you want what you do have to go to those loved ones or organizations you designate. Having that plan in place will allow that to happen rather than the laws of intestacy. Intestacy is dying without a will. The estate of a person who has died intestate goes through probate court and the state's intestacy laws will determine who will inherit the decedent's assets.

Unmarried Couples

For those couples who may own assets together now, but they aren’t prepared to make the leap that all their possessions go to their significant other, they should consider owning property as joint tenants with rights of survivorship. This would allow those assets, and even debts, to go to the surviving person. In this stage, a will is essential if you want your property to pass to your partner at your death.

Married Couples

Now that you’re married, maybe you do wish that all of that which you own goes to your spouse. The process for this should be done through some type of will or trust planning, or even outright bequests.

Married with Children

Once you have a child, it is really important that you set out who the guardian should be for your minor children. If you don’t, it’s going to be the decision of a court and you may not want a court to make that happen. Wills are vital to name a guardian for your minor children in case of simultaneous death. You may also want to establish a trust to manage your children’s assets in the event that both you and your spouse die at the same time. You may also need life insurance to help support your family after an earning spouse dies.

Wealthy and Worried

Now that you’ve accumulated some wealth, you could be subject to an estate tax in the future. In this stage, it is critical that you meet with your team of advisors and create a sophisticated plan that will help eliminate, or at least avoid, some of the estate tax to the extent permissible.

Comfortable and Looking Forward to Retirement

Oftentimes, retirement and later estate planning overlap and go hand in hand. There are items, such as retirement accounts, that you should have been building along the way. Now, you’re thinking about using these assets to help support your lifestyle in this stage because Social Security may, in fact, not be sufficient to provide for your retirement.

Consider saving some of your accumulated wealth using other retirement or deferred vehicles such as an individual retirement account (IRA). Keep in mind that retirement accounts and IRAs pass by beneficiary designation. The beneficiary designation form is important to have completed just as it’s important to have your will or trust done that’s part of your estate planning documentation.

How to Create or Update an Estate Plan

The first step in creating an estate plan is to assemble a team of advisors. Part of developing your team is to consider what your goals and objectives are for your estate needs with an understanding of your current and future financial picture.

Here are some questions you should ask yourself to help define your estate planning goals and objectives:

  • Are you concerned about whether your heirs have the ability to manage or protect your wealth?
  • Do any of your family members have special needs?
  • Whom do you want to leave your financial assets to?
  • Are there specific assets you’d like to give to specific individuals?
  • Do any potential beneficiaries have specific needs that you’d like to meet?
  • Are you concerned about trying to protect assets from a divorced spouse or a beneficiary’s future creditors?
  • If your beneficiaries are different ages, are you concerned about the timing of distributions to them (e.g., second marriage situations, beneficiaries of varying generations)?
  • Do you need succession planning for a family business?

Questions such as these are things you need to ponder before sitting down with the team members who are going to help draft your plan. These questions need to be answered so the provisions that answer them are made part of your documents and your goals are taken care of. Also review any current estate planning documents you already have. You will need to gather your current documents so they can be updated and your wishes that are already in play are incorporated as well.

Once you’ve assembled your team and determined your goals, you should evaluate your assets. In addition, you want to think towards the future so do you expect a significant change in your assets such as an inheritance? You need to incorporate those future assets that may come into your plan at a later date. Furthermore, you may also have business interests and trusts. Some trusts may be part of your gross estate and planning needs to happen for those as well.


When you know your goals and you’ve evaluated your assets, it’s important to understand taxes which could have a significant impact on how much you pass to your heirs when you die.

There are three distinct, but related, federal transfer taxes:

  1. Estate Tax
  2. Gift Tax
  3. Generation-Skipping Transfer Tax

All of these taxes could have an impact on the amount passing to your beneficiaries, depending on the value of your estate.

Estate Tax

The federal estate tax may be imposed on the value of your taxable estate at the time of your death. Each decedent can transfer a set dollar amount of assets free of federal estate tax. This amount, known as the “exemption amount,” is $11.7 million per person in 2021. (Currently, Congress is in the budget process and there’s some indication that they will reduce the lifetime exception amount to $5 million.)

The exemption between spouses is unlimited. Portability of the remaining exemption amount to a surviving spouse must be elected on Form 706 (estate tax return). This is a lifetime exemption amount and can be used during life or at death. Transfers beyond this amount are subject to tax.

Gift Tax

The federal gift tax is imposed when you make gifts in your lifetime that total more than the exemption amount. There is also an annual exemption of $15,000 per donor, per recipient.

Generation-Skipping Transfer Tax

The generation-skipping transfer (GST) tax may be due—in addition to the estate or gift tax—at the highest federal estate tax rate (40% in 2021) when you transfer assets to someone who is two or more generations from you. If the beneficiary is not related to you, the tax may be due if that person is more than 37½ years younger than you. Portability does not apply to the exemption amount for GST tax purposes.


A basic goal of estate tax planning is to transfer as much of your property with as little taxation as possible. One way to do this is to give money away during your lifetime. Gifting can give your planning a purpose, and ensure that assets are no longer in your estate and vulnerable to federal or state transfer taxes.

Examples of gifting would be tuition or medical expenses for children or loved ones or donations to charities. All of these that involve gifting remove assets from your estate and can lower the taxable portion of the estate to the extent you use the lifetime gifting exemption during your life that will lower the amount you have left at death. By making lifetime gifts, you remove not only the gifted assets from your estate but also the future appreciation of those assets.

Essential Documents

Depending on your current family and financial situations, your foundational estate plan will include four essential legal estate planning documents.


60% of Americans do not have a will. If you die without a will, the court will supervise the administration of your estate and then the state statutes are going to determine who should receive your property. To avoid this from happening, you want to have a will.

In the will, you will name a personal representative who will administer your estate. Always name not only a primary representative but also a successor in the event the primary one dies or becomes incapacitated. You’ll also name a guardian for any minor children, and once again you should name a primary and also a successor. Your will can also include a memorandum where, if you have some type of collectibles or other valuable personal property that you want to go to specific individuals, you can then name that in this separate memorandum.

The purpose of a will is to help you avoid any issues with who is going to administer your estate and who will get your assets. Keep in mind that a will does not control assets that are distributed by a beneficiary designation. Life insurance, retirement plans, and annuities are examples of assets a beneficiary designation controls. So where your will and your beneficiary designations are inconsistent, the beneficiary designation is going to be in control. It’s important you check to make sure these are consistent as well as if you’ve named both a primary and a contingent beneficiary for these types of assets.


A trust is a legal entity that holds property designated by you for the benefit of named beneficiaries. A trustee is designated to manage the assets according to the terms of the trust. You can provide direction to the trustee on how to manage and under what terms to distribute the assets. The terms of the trust can be tailored to meet your goals, as well as meet the needs of your beneficiaries. Common examples of trusts include a Revocable Trust, an Irrevocable Trust, and a Generation-Skipping Trust.

If you want to avoid the cost of probate and the additional time it would take to administer your estate, you can title your assets in a revocable trust. A revocable/living trust is like a will, however it also provides for the management of your assets during your lifetime to assist in the event of incapacity. Any assets named by the title of your revocable trust eliminate the need for probate. And because it is a “revocable” trust, it can be changed at any time.

Use an irrevocable trust for things like generational tax planning, children with special needs, control, and asset protection. For example, you could have a beneficiary who has special needs and you want to protect the government assistance for that individual, so you will want to set up a special needs trust. You may also want to set up trusts for certain beneficiaries to protect the assets from a creditor or divorcing spouse, or even put assets into a trust to protect against any elder financial abuse. You can design trusts to be as flexible or restrictive as you desire, as well as last a short time or for generations.

Powers of Attorney

There are basically two types of powers of attorney – financial and medical. A financial power of attorney (also known as a durable power of attorney) is a simple way to arrange for someone else (an agent) to handle your financial affairs if you are no longer willing or able to do so. You provide the agent what they can do on your behalf should you become incapacitated during your lifetime. Once again you should name a primary agent and then a successor agent in the document.

The medical power of attorney enables the agent to make medical decisions on your behalf should you be unable to. It’s advisable to discuss the type of care you’d want with this individual ahead of time. And once again, you should name both a primary and then a successor agent.

Keep in mind that once you die, both of these types of powers of attorney are no longer in effect and those agents cannot act on behalf of your estate.

Living Will/Advanced Directives

In the U.S., only 25% of Americans have a living will. A living will deals with end-of-life decisions. The living will (also known as an advanced medical directive) provides instructions to your physician on the types of life-sustaining treatments you do or don’t want if you’re unable to communicate those decisions yourself. For example, if you are in a vegetative state, this document will then set forth what you want to have done if you’re in such a state.

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Common Estate Planning Strategies

Many factors can influence the design of a comprehensive estate plan, and your own plan should be customized to achieve your personal goals and objectives. The drafting of the above documents can incorporate different types of plans and different levels of sophisticated provisions. Three general categories of planning are:

Outright Bequest

This is the simplest of the plans where whoever is passing leaves everything to one or more people or organizations. Even though it’s simple, you don’t have control on the management of those assets after you pass. Your assets simply go directly to those people.

Disclaimer Plan

With a disclaimer plan, your will or revocable living trust directs that all of your assets are distributed outright to your spouse. Then, if your spouse chooses to disclaim any portion of those assets, the disclaimed amount goes to a trust for the primary benefit of your spouse. A disclaimer plan gives your spouse flexibility in determining how much—if anything—should be held in a trust at the time of your death.

Credit Shelter Trust and Marital Share Plan

With a traditional credit shelter trust (CST) and marital share plan, your will or revocable living trust directs that your assets, up to your exemption amount, be distributed to a credit shelter trust, and the balance of assets thereafter—called the marital share—be distributed to your surviving spouse (outright or through a trust). Married couples who have estates that exceed the exemption amount often include a CST as part of their estate plan.

Gather Your Information

Creating a list of vital information about you and your family will assist with your estate planning. SVA’s Estate Planning Inventory Workbook will help your family and those who will be responsible for your affairs if you become disabled or at death. Your will and other estate planning documents will cover how your assets will be handled, but this workbook will provide more detailed information not always listed in those legal documents.

After creating the list, you will want to revisit it occasionally to make updates so the information is as current as possible. Let your family know where you keep the document so they can easily access it when needed.


When you think you are done planning, it’s time to communicate. It’s important to begin preparing your beneficiaries by helping them understand what will happen after you pass away, and what they should expect when they inherit your assets. By starting to prepare your beneficiaries now, you can help ensure that your family’s transition will be more seamless, while also minimizing the emotional impact of your death on your family.

It’s important to have an estate plan. You want to make sure the assets you’ve worked so hard to accumulate during your lifetime go to the people or organizations you care about.

Estate planning can be a complex process, but you can make it easier with the support of capable, experienced professionals. Contact SVA today. We’re here to help.

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Biz Tip Topic Expert: Richard Kollauf - JD, CPA, CFP, AEP

Richard Kollauf - JD, CPA, CFP, AEP

Richard is a Principal for SVA Certified Public Accountants and has more than 35 years of experience working in financial, accounting, and legal operations. Richard’s expertise in the multi-faceted financial environment includes business succession planning, tax, investments, finance, mergers and acquisitions, estate planning, and trust administration. He also has experience in estate planning and distribution for complex operational and investment multi-state businesses. Richard provides income tax consulting services to closely-held and family-owned businesses, as well as high net worth individuals.

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