A: One of the first steps to take in the estate planning process is to determine how much planning you’ll need to undertake. No two situations are alike. And even individuals who don’t have a great deal of wealth require some degree of planning. On the flip side, those with substantial assets often require highly complex estate plans.
Two key components of your initial needs evaluation are an estate analysis and a settlement cost analysis. The estate analysis includes an in-depth review of your present estate-settlement arrangements. This estate analysis will also disclose potential problems in your present plan and provide facts upon which to base decisions concerning alterations in your estate plan.
For example, you may believe that your current arrangements are all taken care of in a Will that leaves everything to your spouse. However, if you’ve named anyone else as a beneficiary on other documents – life insurance policies, retirement or pension plans, joint property deeds – those instructions will likely overrule anything set forth in a Will. It is important to ensure that all your instructions work harmoniously to follow your exact wishes. In addition, you may want to consider alternative asset ownership arrangements under certain circumstances. The reason? While your spouse will receive your estate free of estate taxes if he or she is a U.S. citizen, anything your spouse receives above the applicable exclusion amounts will be subject to estate taxes upon his or her death.
An estate settlement cost analysis summarizes the amounts of various estate distribution arrangements. In estimating these costs, the analysis tests the effectiveness of any proposed estate plan arrangement by varying the estate arrangement, the inflation and date of distribution assumptions, as well as specific personal and charitable bequests.