The law makes sure that ownership of property is always certain; property is never in limbo, without a legitimate legal owner. When someone dies, in order to efficiently transition ownership of everything they own, a temporary owner is therefore created.
The law provides that at the exact time of death, all the property of the decedent is automatically and immediately transferred to a legal entity referred to as the "decedent's estate." This estate can own property in any jurisdiction, domestic or international, state or federal, and the property itself can be of any variety. Real estate, checking accounts, savings accounts, all forms of investment including stocks and other securities, life insurance policies and personal property, such as cars, furniture, and clothing, can be part of the estate.
This transfer of ownership is inevitable; however, the law also provides for ways individuals may plan ahead for a "decedent's estate." Lawyers, accountants, and various financial planners together contribute to this process, which has come to be called estate planning.
Estate planning is important, no matter one's age or the amount of property one owns. It is by estate planning that someone can decide which loved one should receive what specific property after their death, as well as if a certain relative should receive nothing ("disinherited").
Estate planning also allows for fast and efficient transfer of the property with as little legality and emotional distress involved as possible. It minimizes the taxes that need to be paid, and avoids the expense in time and money that formal probate process involves, through the use of living trusts and other legal strategies.
Estate planning prepares for more than financial and property matters: it allows for decision-making in advance on the type of medical care someone wants to receive should they become incapacitated and unable to decide for themselves. It also allows for pre-planning (and pre-payment) of your funeral arrangements and their related expenses.
Estate planning tools include wills and various types of trusts. The drafting of a Last Will and Testament can be complicated: do you need a basic will or a pourover will? What kind of trusts are needed is another complex issue: should you have a Living Trust? An AB trust? A QTIP trust?
Estate planning, from a lawyer's perspective, involves strategizing which estate planning tools work best for the individual involved. Considerations of which planning tool provides the most options for the individual must be weighed against whether or not it will require the time-consuming formal probate process, as well as considering the timing of property distributions to maximize protecting the assets from creditors and minimizing state and federal taxation.
To an attorney, proper estate planning involves first, minimizing the tax consequences of transferring a person=s property under state and federal gift and estate tax laws; and secondly, accurately drafting, within the proper documents, provisions for taking care of the decedent=s loved ones. These two goals may sound simple; however, proper estate planning is a very complex area of the law.
Lawyers will consider the use of wills, living trusts, as well as choice of legal ownership, including joint tenancy and community versus separate property. Furthermore, they will address complex tax considerations, which involve not only estate and gift taxes but each asset=s stepped-up basis at death; the impact of the unified credit; and the impact of the marital deduction upon property passing to a surviving spouse.
Additionally, proper estate planning involves an attorney=s analysis of each client=s individual situation. In many cases, the client will need proper planning to provide for guardians to care for minor children and perhaps aging parents or other relatives, as well as corresponding trustees for any trust established for the care and support of these individuals.
Proper estate planning provides peace of mind as well as financial security. In most states, attorneys specialize in this area of the law and are often provided with specialized certificates (i.e., Board certification) in the area of estate planning.
For More Information
- The Federal Estate Gift Tax (26 USC Subtitle B);
- Federal Agency Regulations for Estate and Gift Taxes (26 CFR chap.1; part 20 (estate taxes), part 25 (gift taxes));
- While each state has its own individual legislation, the following serve as an overview of state law pertinent to estate planning: