Estate planning is the process of arranging the distribution of the assets of a person when he or she passes away. The word ‘estate’ means net worth of a person in life as well as after passing away. It is the sum of assets including legal rights, interest on property as well as financial entitlements, less liabilities.
Estate planning attempts to eliminate uncertainties over the administration of probate and maximise the value of the estate by reducing taxes and other expenses. It also aims to reduce conflicts and delays in the rightful distribution.
Some of the important terms are:
Bequest – specific items of property that a person leaves to others in his Will
Will – a legal document outlining how a person wants his property divided and distributed after death
Beneficiaries – persons receiving property identified in a Will
Heirs – persons who are entitled to receive parts of the estate
Residual estate – amount left over after expenses, taxes and bequests
Probate – a legal document that is the official proving of a Will
Intestate – having made no valid Will or an estate not disposed of by a Will
Executor – a person designated to make sure the provisions of the deceased’s Will are followed and legal requirements are met
Trust – a legal format by which property is held in the interest of designated beneficiaries
The first step in estate planning is to calculate the value of the client’s assets and liabilities. Items included are real estate, securities and tangible property. In addition, life insurance policies are also considered part of the estate even if someone else is the beneficiary of the policy. Finally, we include amounts contained in retirement accounts and pension death benefits.
Though estate planning sounds and can get complicated, simpler plans are often adequate for a majority of clients. For example, a simple Will that articulates the assets, the beneficiaries, the proportions of distribution and the executor.