Estate Planning: Your Legacy in Action

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Winter 2012-2013

Estate planning can be a useful tool to avoid probate and potentially reduce estate taxes, helping you protect your beneficiaries. While U.S. Bank does not offer tax and legal advice, we do offer some guidance on how to take the first steps.

Photo by Emmerich-Webb

More than half of American adults do not have a will, let alone more sophisticated estate planning tools such as trusts, according to a 2011 survey conducted by Harris Interactive for online legal service Rocket Lawyer.

“Time passes, kids grow and families change. If you do estate planning in your 50s and don’t revisit it until your 80s, you miss 30 years of opportunities to shift your wealth.” 

—David Shannon, Partner, Faegre Baker Daniels


Failure to do estate planning can be a mistake, especially for high net worth individuals, says Sally Mullen, Chief Fiduciary Officer for U.S. Bank Wealth Management. “Estate planning is not merely one piece of a financial plan,” she says. “It’s a process that involves thinking about the legacy that you’d like to leave to the next generation and how to help ensure your family and loved ones are cared for.”


A strong estate plan can help to ensure your assets are distributed the way you want after your death. It may also protect your estate and beneficiaries’ estates from significant taxes that could cut their value in half, says Mike Schwartz, Partner with the law firm Vorys, Sater, Seymour and Pease in Cincinnati, OH. Estate planning can be a complicated process, especially if you have family situations that include multiple marriages and children, or loved ones who require medical care or trustee oversight, he says. It’s worth the effort, knowing you are not leaving your legacy to chance.



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Our experts explain the basics of estate planning:


What Does Estate Planning Look Like?

A will is the simplest place to begin, Mullen says. A will states how you want your assets distributed and to whom. If you die without a will and leave assets in your own name without a beneficiary, your estate assets will be probated and eventually distributed in accordance with your state’s intestacy statutes. Any assets going through probate will first be allocated to pay off debts, obligations and court fees before beneficiaries receive anything.

For more complex estates, individuals may establish trusts to potentially protect assets from taxes and creditors while setting aside resources for their beneficiaries. Trusts can take several forms:


How to Potentially Avoid an Estate Planning Mistake


Revocable Living Trusts: Everything in a revocable living trust goes to the designated beneficiaries upon your death. Beneficiaries can avoid probate, and you can modify the trust

at any time, Schwartz says. This allows you to change allocations as your estate grows or beneficiaries mature, or pull out assets if you need them or decide you don’t want to leave them to the designated beneficiaries.


The downside is assets are still considered part of your own estate for creditors and estate tax purposes.


Irrevocable Trusts: This trust cannot be altered once it’s established. For individuals who do not expect to use all of their wealth in their lifetime, irrevocable trusts can be used to gift assets, potentially tax-free, to children, grandchildren, charities or other beneficiaries while lowering their own taxable estate value.


The potential benefit is your estate no longer has to pay taxes on the asset or the income it generates. Irrevocable trusts may also protect these assets from creditors and probate after death.


While you can maintain control of the assets by naming yourself the trustee, you can no longer access those resources for your own gain once the trust is established. So before choosing an irrevocable trust, be sure you will not need access to those funds in your lifetime, Mullen says.

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Irrevocable Life Insurance Trusts (ILIT): With an ILIT, a life insurance policy is purchased and placed in the trust for the benefit of beneficiaries. After the insured’s death, the policy proceeds are protected from probate and the insured’s creditors, and the value of proceeds are not included in the insured’s taxable estate. Depending on its terms, the ILIT can provide beneficiaries with almost immediate access to funds to conduct business transactions that require significant resources such as the purchase of family business interests. “This type of trust creates liquidity by putting cash in beneficiaries’ hands,” Mullen says.


An ILIT may be an appealing alternative to other types of irrevocable trusts because the primary asset is an insurance policy rather than an investment portfolio. However, the person who creates the trust may have to make annual cash contributions to the trust to pay insurance premiums on the policy so there can be continuing expense depending on the type and amount of insurance. Once the trust is established, it can’t be altered.


When Should You Do Estate Planning?

It’s not enough to create an estate plan and stick it in a file for decades, says David Shannon, Partner at the law firm of Faegre Baker Daniels in Minneapolis, MN. “Time passes, kids grow and families change,” he says. “If you do estate planning in your 50s and don’t revisit it until your 80s, you miss 30 years of opportunities to shift your wealth.”


Shannon suggests reviewing your estate plan every few years to make sure it continues to meet the needs of your estate and your beneficiaries over time.


Mullen points out that it’s also important to stay abreast of estate and gift tax law and be mindful of action in Congress. “Otherwise, unintended consequences may result,” she says. For example, you could mistakenly assume that your assets will be protected under tax laws that no longer exist, or miss out on opportunities to protect assets while there is still time before these laws change, Mullen says (see “Looming Tax Law Changes”).


Looming Tax Law Changes

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How Should You Begin Your Estate Planning?

Every estate plan is unique, and must be crafted with your specific goals, beneficiaries and assets in mind.


Shannon says working with an investment advisor,an estate planning counselor and an accountant to craft a plan will best protect your assets and keep your legacy intact. Review it every few years to ensure it continues to meet the needs of your estate and your beneficiaries.

Shannon encourages individuals to discuss their plan with family. “It’s a good way to show your loved ones that you have been thoughtful about your own financial planning and their future,” he says. “And it may instill good financial habits in the next generation.”


Please see important information below.

Wealth Transfer