Sun | Oct 24, 2021

Oran Hall | The tools of estate planning

Published:Sunday | July 28, 2019 | 12:00 AM

Estate planning is the process of acquiring, using, and preserving assets during your lifetime and arranging your affairs to transfer your assets effectively to your heirs and beneficiaries during your lifetime or after death.

When done well, it makes it easier to transfer assets to beneficiaries with ease and at the lowest cost.

The range of tools available – trusts, wills, inter vivos transfers, powers of attorney, living wills, healthcare powers of attorney, and joint ownership of property – can be combined or used alone to yield many benefits to beneficiaries and the owner of the assets.

A significant benefit to the individual sharing or transferring property is the control that estate planning gives to the owner of assets with respect to who gets a benefit, in what form, how and when. A will may be used to transfer property after death, and a trust may be used to give a benefit to a beneficiary during the lifetime or after the death of the grantor or settlor – the person who owns the property. Establishing who the beneficiary is significantly reduces the risk of assets passing to people and causes other than those intended by the transferor.

A trust – although costly to set up and manage – can be so set up that benefits can go to a beneficiary who lacks the competence or maturity to manage the assets well, and it can facilitate the direction of funds for specific purposes and the time during which funds may be made available to the beneficiary.

Additionally, a trust can be established such that the settlor is also a trustee, thereby exercising control over the trust assets. A trust may also provide income and security to the settlor and beneficiaries, and the fact that some trusts may be revocable also gives the settlor flexibility to make changes if necessary.

Estate planning tools can also be used to manage elder care needs. The tools of importance in this case are a living will, a power of attorney, a healthcare power of attorney, and a will. A living will lets individuals state their wishes for end-of-life medical care should they become unable to communicate their decisions. A power of attorney gives an agent the power to act for another. Such authority may be broad or limited and is useful in matters related to property, finance, and medical care.

A healthcare power of attorney provides a person with options for expressing medical care preferences and instructions in the event of mental incapacity or the inability to make or communicate decisions, and a will provides for the distribution of assets after the death of the testator. When a will is in place, it allows for the wishes of the testator to be carried out after death even if the testator loses the mental or physical capacity to direct how assets should be distributed in the years just before death.

Estate planning tools can be used to address special circumstances.

In addition to trusts, joint ownership of property may be used to let beneficiaries participate in the ownership of assets, and though this tool is not free from risk, it provides for continuity in the management of assets in the event of one owner experiencing incapacity, for example, and, like inter vivos gifts, which are given during the lifetime of the giver, is also an effective way to eliminate the expenses associated with proving a will and settling the estate.

Estate planning tools make it possible to provide for the most vulnerable beneficiaries. A trust, for example, may provide income for a beneficiary who is incapacitated, and a will may provide for any beneficiary that the testator chooses but particularly for those in vulnerable conditions.

Some estate planning tools can provide liquidity in the period just after death. Life insurance policies serve the important function of providing funds soon after the policyholder’s death to address testamentary expenses as well as the living expenses of beneficiaries. Living trusts can also continue to distribute income from trust assets to beneficiaries, and joint accounts can readily provide access to funds.

The tools of estate planning are sufficient to save money in regard to the transfer of assets, to protect assets, to reduce the stress often associated with addressing claims to assets, and to exercise discretion regarding how to distribute assets in life or after death.

At the same time, there are tools to provide for the care of an individual in the event of ill-health and mental incapacity as well as for important decisions to be taken in regard of a person’s business in the event that the individual is not present or available to act.

Oran A. Hall, principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel.