Estate planning means developing a plan to transfer your property to the next generation with minimal tax exposure. It involves determining how your assets will be preserved, managed, and distributed after death or if you become incapacitated.
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Estate planning often involves the use of a will. A will, is a document, usually in writing, designating a person’s wishes regarding the distribution of their property after they die.
Estate planning is often considered a special concern of the aged, where the probability of death is greater. Younger people, especially those with children, also have a great deal to gain from planning. In fact, they have more to lose if they don’t plan. While the probability of death is not as great for younger people, the effect of death may be greater. This is because they need to care for their young children and provide for the management of their property.
A comprehensive plan should include methods of owning property; insurance, its ownership and beneficiary designations; gifts and other transfers of property, both during life and after death.
Who Should Plan their estate?
In planning, you need to understand how ownership of property can affect what becomes of your property at death.
In a sense, everyone has an estate plan. An individual may have a personal plan, evidenced by a will. This is often developed by a lawyer. For those who do not have a personal plan, the State places your estate into administration. The state then invites your relatives to apply for a Letter of administration. This allows the duly appointed administrators to distribute your property according to your customary law, or Islamic law (where applicable).
If the general laws of the state regarding distribution of property at death meet your personal objectives, you need do little else. In the future, we will explain how property can be distributed and minor children are cared for when there is no will. But if you feel your objectives will not be met by the general laws, you may want to develop your own plan.
For those who own an interest in a family business, the business plan should be considered along with an estate plan. Since the estate will contain the person’s business interests, decisions should be made, so both plans fit together reasonably well.
The Plan
Estate planning should be directed at three levels of concern:
1. What to do with the property if one spouse should die, assuming there are a husband and wife.
2. What to do with the property if both spouses should die.
Custody of minor children may be an important question here and a guardian can be nominated in the will. Also, minor children are not considered competent to manage property so a trust, for example, could be a helpful item to include in the parents’ wills.
3. What to do with the property if the entire immediate family should die. This may be the first level of concern for single persons who are by themselves the “immediate family.”
For couples, if there is no estate plan, the order of death may determine which side of the family will receive the property. For example, where the immediate family is killed in an accident, but members die at different times, the person who dies last gets the property.
So the order of death may determine whether the property goes to the husband’s side of the family or the wife’s.
Objectives of an Estate Plan
Determining the objectives of an estate plan is the most important step. If you can identify and articulate your objectives—what the property is to be used for and for whose benefit—the chances are quite good that a plan can be developed to accomplish your goals. Since there are many ways of transferring property, much flexibility exists. There are a few restrictions on what one can do with property, but most people find these restrictions to be reasonable. A greater concern often is the competition among objectives. Some examples of such competition will be examined later.