At some point in a person’s life, he will think about what happens when he is no longer around. There may be a myriad of questions to ponder over. Will his savings go to those who matter to him? Will they have enough funds to sustain themselves for maintenance, medical and education needs? Will the funds be wisely invested? Who will succeed in the business that he owns? And so on. Such questions point to estate planning. The objectives of estate planning include aspects such as:
- The distribution of the estate in a fair and equitable manner.
- The preservation or enhancement of the value of the assets.
- Ensuring that loved ones are financially protected.
- Maintaining orderly succession and harmony among heirs.
Estate planning is the systematic planning for the distribution of the estate of a person, according to his/her wishes and in anticipation of future absence (such as death or incapacity). It needs to be systematic because distribution of an estate involves looking at many aspects. When one wants to leave something to another, the objective has to be considered together with tax, cash flow, timing and various risks such as competence or vulnerability of the beneficiary. This Chapter introduces how an estate planner could get his clients start their estate planning.
Technical Aspects of Estate Planning
What is Estate Planning?
The elements of estate planning involves aspects such as ownership, security and protection of the estate, distribution of the benefits and appointing the person or persons entrusted with responsibilities and trusteeship. A dictionary meaning of an “estate” is as follows:
“The degree, quantity, nature, and extent of interest that a person has in Real and Personal property. Such terms as estate in land, tenement, and hereditaments may also be used to describe an individual’s interest in property. When used in connection with probate proceedings, the term encompases the total property that is owned by a decedent prior to the distribution of that property in accordance with the terms of a will, or when there is no will, by the laws of inheritance in the state of domicile of the decedent. It means, ordinarily, the whole of the property owned by anyone, the realty as well as the personality. (taken from the Free Dictionary by Farlex)
From a technical aspect, estate planning involves:
- The process of ensuring that the client’s wealth is properly managed to achieve wealth accumulation, provision and maintenance for family members and the ultimate distribution of his estate to his beneficiaries.
- Ensuring the security and protection of the client’s estate, minimizing leakages of wealth through taxes or probate.
- Identifying the best methods for the holdings of assets, the transfer or distribution of the estate. This may include the preparation of a will, making gifts or creating a trust (either during lifetime or in a will).
- Identifying the persons or professionals to execute the Estate Plan.
Estate Planning, therefore, relates to the planning for the smooth succession, distribution or transfer of a person’s assets on his death to persons whom he wishes to benefit.
The Issues to Grapple with
Many people agonise over the best ways to distribute various assets to their spouse and children. Should it be given equally, or should some have more than others? Should the assets be separately given or should they be shared? If shared, would this cause friction and dispute over asset usage or disposal?
The Role of the Estate Planner
The multitude of potential issues is often underestimated by the client. Just as a client needs to see his investment adviser to understand the investment climate and market risk concerning his investments, it is equally important today for the client to have an estate planner to guide him through the multifaceted aspects of estate and succession planning. The subject is wide in scope and is highly technical with many issues to be grappled with as mentioned in the earlier paragraphs.
It is important that the estate planner is able to understand the wide scope of issues that need to be addressed in a person’s estate plans. And it is also important for the estate planner to be able to identify the triggers that their clients can relate to. And getting them to engage in estate planning is the root of why one needs to know the technical aspect of estate planning.