Estate Planning Part 1: Objectives

Estate Planning Part 1: Objectives

Although it may not be the most enjoyable task, the importance of planning ahead for the management of your estate at death or in the event of untimely incapacitation cannot be understated. With wills, trusts, powers of attorney, medical directives and other estate planning tools, a person can ensure that their loved ones are left with a clear plan for managing their affairs after incapacitation or death.

An estate plan designed to avoid property distribution complications before and after death should meet six objectives:

1. Create an estate if one does not exist;
2. Conserve an estate when one exists;
3. Optimize the ability of the client to use the estate assets during his or her lifetime;
4. Provide for management of the client’s property if and when the client becomes disabled or incapacitated;
5. Provide for the transfer any part of client’s property during his or her lifetime if requested; and
6. Direct the transfer the remainder of client’s property at the time of his or her death. (1)

Estate planning can also serve to limit estate costs and tax liability by involving consideration of the types and location of a client’s assets, whether there is a need for liquidity after the client’s death, the identities and particular needs of beneficiaries, and last, but not least, potential tax consequences, including estate taxes, income taxes, and generation-skipping taxes. (2)  These objectives and considerations aim toward achieving maximum benefits and financial stability for the client and his or her loved ones.

When a person dies without a will (i.e., dies intestate), state law dictates the distribution of their property. An intestate decedent’s personal property is distributed based on the laws of the state where they resided at death (i.e., their domicile), and real property is distributed according to the laws of the state in which the property itself is located. If an intestate decedent owns real property in multiple different states, separate administration proceedings may be necessary in each state.  Distribution may differ from state to state, further complicating an already difficult process. A person who dies with a will, however, can control the distribution of all of their real and personal property regardless of location. Ancillary probate proceedings are required by some states to give effect to a will probated elsewhere (e.g., Louisiana and Oklahoma), but these proceedings are generally simplified in comparison to the original probate proceedings.

After a person’s death, the estate may need funds to pay off various debts or expenses. In some cases, where liquid assets are insufficient to cover these expenses, a court may force the sale of certain estate assets.  A  thorough estate plan should anticipate the funds needed to avoid insolvency and build liquidity during a person’s lifetime to prevent a forced sale of their assets after death.

Federal estate taxes and benefits should also be considered while formulating your estate plan, including the unified credit against gift and estate tax and the marital deduction. (3) The unified credit exempts a beneficiary from payment of estate taxes up to a certain amount, which varies from year to year. The unified credit exemption limit has been trending upward over the years, and recently increased to $11.7 million for the year 2021. Not all estates are required to file estate tax returns, and the unified credit only applies to estates with a value exceeding a set amount. Even if estate assets fall short of this limit, other tax benefits may apply. The marital deduction provides an estate tax exemption for married persons regardless of the size of the estate or the amount inherited by the surviving spouse. The property inherited by the surviving spouse will then be taxed at their death as part of their separate estate. (4)

In our next post, we will expand upon estate planning in light of the objectives discussed here, focusing on the main tools in the estate planning process: wills, trusts, powers of attorney and medical directives.

Kuiper Law Firm, PLLC offers comprehensive estate planning services. If you have any questions about how to protect your assets or plan for the future, do not hesitate to contact us.

  1. 1 Texas Estate Planning § 1.03 (2020).
  2. 1 Texas Estate Planning § 1.02-1.03 (2020).
  3. 1 Texas Estate Planning § 1.03 (2020).
  4. 1 Texas Estate Planning § 1.03 (2020).