CHAPTER 8: Estate Planning: Protecting What's Important to You

Many clients I speak to consider a fully funded retirement plan to be a huge accomplishment and the most critical piece of their financial puzzle. That’s understandable, given how much we talk about retirement planning and how much is riding on whether your retirement savings provide adequate financial stability once you stop working.

However, wealth accumulation is only part of the puzzle. What about wealth preservation? What happens to your wealth later in life or after you are gone? Will the tax man get more than his fair share? How about the nursing home? Do all your kids and their spouses get along? They may not once they start arguing over the best way to pay for your care or settle your estate.

 For your loved ones’ sake, you need to develop a thoughtfully laid out estate plan now, one that takes into account the many potential pitfalls we face every day. In my practice, people get sick and die unexpectedly more than I care to admit, often creating legal and tax implications for surviving family members.

I recently had a 45 year old client pass away in a motorcycle accident. He was remarried to a woman with 3 daughters of her own from a prior relationship. He was also the youngest sibling of 4 brothers that recently took over control of a well-known local family business. Unfortunately, not all the siblings got along and did not see the new wife as the rightful heir to the family business. To make matters more difficult, there were no legal documents to address how the assets should be divided after his passing. The case was eventually settled out of court, only after a messy and costly legal battle. Needless to say, many family relationships were permanently ruined simply because there was no thought given to an effective estate plan.

My client’s lack of planning is not unique. Only 44% of people aged 55 and older have a  basic will1. The number one reason the remaining 56% do not have a plan is because they do not know where to begin. Help take some of the stress out of your future loved ones’ lives by completing a well thought out plan now while healthy.

Sonny Bono, the Californian politician and former singer/songwriter, died an untimely death in a skiing accident in 1998, and why he died without a will is something we will never know. Instead of staying at home to grieve, his widow, Mary Bono, headed to the courthouse to be appointed the estate’s administrator. Cher, Bono’s ex-wife, showed up on the scene as a claimant to the estate, and a “love child” surfaced soon after that, making the situation even more difficult. Eventually, Bono’s two children and Mary Bono were determined to be the heirs. It was a media sensation, extremely costly, and a huge embarrassment to the whole family.


Proper estate planning by Sonny Bono would have avoided most of this hassle. The list of celebrities who had estate problems is extensive, here are just a few of the notables:

  • James Brown

  • Ted Williams

  • Jimi Hendirx

  • Bob Marley

  • Howard Hughes

  • Elvis Presley

Probate - Just the basics

When we break it all down to its simplest form, estate planning is nothing more than a plan of giving what you have to whom you choose in the most efficient way possible. There are three most common ways to leave assets to beneficiaries: wills, trusts, and beneficiary designations.

Of course you can always use the old “load up the pickup truck” method and let heirs go through and distribute any non-titled personal property they like. It sounds obscene, but it is quite common, and there is nothing wrong with this method unless you are outright trying to ‘hide’ assets from the tax man.

Probate is the legal court process of making sure assets transfer to the rightful beneficiaries upon the death of the owner in an orderly manner. Your will is essentially a legal document to guide the probate judge in your state. If you die without a will, you die ‘Intestate’. In this situation the probate judge will still have a plan for you and use state laws and rules to determine the best way to distribute your assets. In this situation, it's the judge’s distribution plan, not yours!

 If you want to have control from the grave and avoid the probate court system all together, then there are two common ways to accomplish this.  First, name beneficiaries on all the accounts that allow it before you die.  IRA’s, bank accounts, and even most real estate will allow you to name a beneficiary. If there is a properly named beneficiary surviving your death, then that pre-written distribution plan will take precedence over any probate hearing.  Simply provide the death certificate to the financial institution, and the account transfer will proceed to the named living beneficiary.

 The second option is to create a trust, either revocable or irrevocable. The trust would then own the asset at death, and whatever the trusts pre-written distribution powers are, will govern an orderly asset distribution outside of any court proceeding, with some exceptions of course.

Why incapacity planning is essential

It isn't always about death, however. A sound estate plan can also address incapacity. Incapacity is the physical or mental inability to do something or to manage one's own affairs. In the context of what we are discussing here, it's the inability to make specific decisions about your health and finances or inability to communicate your medical and financial decisions to others to act on your behalf.

Sometimes, incapacity is a slow and gradual process, such as when someone tragically suffers from dementia. In many cases, incapacity can also happen more suddenly due to accidents or medical conditions, such as a heart attack or stroke. Incapacity is not an "all-or-nothing" condition, either. For instance, you may have the capacity to make some decisions about care but not complex financial matters.

While not everyone experiences incapacity toward the end of their lives, preparing ahead with a sound estate plan will better equip you and your family to take care of these essential needs in case the unexpected happens.

How do you plan for incapacity?

First and foremost, you need to find someone to act on your behalf that can carry out your written wishes in a legally drafted estate plan. You will need to choose a trustworthy, competent person and identify them by name in legal documents as your executor or power of attorney. This person will be responsible for specific decisions regarding your health and finances, so make sure they are capable of doing so on your behalf. Do not assume that just any family member or friend is willing or able to take on the responsibility and stress.

Before making a selection, be upfront and ask if that person is up to the task. They have every right to decline your request. Some may feel incapable of handling stressful matters, be emotionally unprepared, or have too many other responsibilities of their own to adequately fulfill your requests. The last thing you want is for important decisions to be made by someone who did not want the responsibility in the first place!

What are some of the more common documents used in an estate plan?

The implementation step of estate planning is to formalize everything in document form. Some of the more common documents used today as part of a comprehensive est plan may include2:


  • Durable power of attorney - A durable power of attorney can grant someone the legal authority to make healthcare or financial decisions for you. Be explicit when having this document created and state that you want a durable (versus a non-durable) power of attorney. A non-durable power of attorney becomes ineffective the moment you become incapacitated, so it would not be useful in an incapacity plan.

  • Living will - A living will is a written document that clearly details your medical wishes if you become incapacitated and specifies which end-of-life decisions you would like made. Living wills are sometimes referred to as healthcare proxies or advanced medical directives.

  • Will - Many people confuse living wills with a standard will, also known as a “last will and testament.” However, the latter handles different matters, such as how you want your assets and property handled when you pass. It is a vital document, but it only becomes effective at your death and does not address incapacity.

  • Revocable living trust - Similar to a living will, a revocable living trust will describe how you want your assets distributed. The idea behind a living trust is that you can transfer (or grant) the title of those assets to the trust while you are still alive. You do not give up legal power over the trust and you continue to serve as the trustee. You can even name a successor trustee in the event you do become incapacitated.

  • Family trust - Gifting family assets or property to kids or grandkids through an irrevocable family trust is often at the top of many of my higher net worth clients’ goals. This allows the donor to essentially control how the assets are used from the grave. Trusts set up for education funding, annual family trips, or even perpetual trusts that help pay for the maintenance and upkeep of the family farm or lake house are all great ways to make a lasting impact on future generations long after you are gone.

Life insurance: A vital tool in estate planning

Life insurance sometimes suffers from a bad reputation of being expensive and unnecessary, but when structured carefully, it can be a vital tool in one’s comprehensive estate plan. The best feature of life insurance is that it can provide your beneficiary with a single lump sum of cash quickly, and tax free, soon after you pass away3.


When properly included as part of your estate plan, life insurance can help your heirs in the following ways:


  • Upon your passing, it can provide liquidity while your assets are distributed. Real estate, investments, and property all have value, but they must be sold or rented out before your heirs can receive that value — and this can take time.
  • Life insurance can allow your spouse to continue living their life as normally as possible, instead of worrying about money while grieving your passing.
  • A policy payout can be used toward your final expenses, such as funeral costs, estate taxes, recurring payments, or unpaid bills.

Life insurance is particularly helpful to families that are ‘asset rich but cash poor’. The perfect example around my neck of the woods are farming families. With land prices today starting at $10,000 per acre and higher, family farms that were homesteaded years ago have grown organically through acquiring adjacent neighboring farms and are now actually quite asset rich. What happens when ‘farmer dad’ has multiple children? Does one become an electrician and one stays back on the farm? If farmer dad’s wishes are to provide for all the kids equally, but only one is running the farm, how does farmer dad raise the cash to make things equal without selling off a vital 160 acres of the farming operation? The magic solution is life insurance!

Charity, beyond simple Legacy planning

A charity or endowment can also be an effective way to help make a difference in other people’s lives beyond your own family.

The easiest way to handle charitable donations is through direct gifting. This entails making donations while you are still alive or directing gifts to occur after your passing by outline bequests in your will.

Not only can giving to charity feel rewarding by itself, but you are also rewarded by the IRS for your good deeds. In fact, several tax benefits come with making charitable donations.


Donations are deductible for donors who itemize when filing their income tax returns. Overall deductions for donations to public charities are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI. Contribution amounts in excess of these deduction limits may be carried over up to five subsequent tax years.

Other methods may provide greater tax efficiency or allow you to accomplish more complex gifting objectives, such as retaining control of assets until you pass.


Some of these charitable giving strategies include:

  • Trusts - A trust allows you to transfer ownership of assets and have them managed for the benefit of one or more beneficiaries.
    This can help you reduce various forms of taxes, such as income or estate taxes, or make transfers more straightforward, as the document details which assets will go to who and when. 

    There are many types of trusts that each have their own characteristics. One example used for charitable giving is a Charitable Remainder Trust. This type of trust allows you to receive the benefits of the assets (like interest from investments) within the trust until you pass, at which point the remainder is transferred to your chosen charity.

  • Donor-advised funds - Donor-advised funds (DAF) allow you to make charitable contributions and designate grants from the fund over time. With a DAF, you can typically claim a tax-deduction for contributions right away. The amount you can deduct will depend on several factors, including the type of assets donated and how long you owned them.

    You can invest the money in a donor-advised fund and let it grow tax-free over time, similar to how you invest money in your IRA or 401(k)4. Once you pass, your family can continue directing payments from the DAF to charitable organizations, making these powerful tools for legacy planning5.

  • Qualified charitable contributions - When you turn 72 (or 70 1/2 if you reached that age before December 31, 2019), you must begin taking required minimum distributions from your traditional IRA and pay any necessary taxes6.

    However, you can direct up to $100,000 per year toward one or more charities7 without ever having to claim it as income. This option provides a tax deduction for the full distribution, even if you do not itemize.

A retirement advisor can help

If incapacity and legacy planning are as important to you, then make sure you account for them in your overall retirement plan. Even though legal counsel is often required to draft up and implement some of the concepts discussed here, a retirement advisor can help you understand your options through education and point you in the right direction.

Watch for additional posts and planning tips in the weeks ahead, or contact us at any time to discuss your planning needs. 

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Important Disclosures:

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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