Wealth Preservation Planning

While each person's estate and wealth preservation plan should be tailored to their individual needs, a proper plan will generally include the following:

1) Proper Will for Each Spouse
Each spouse should have a proper will which clearly states who receives property and in what manner. Each will should also appoint a personal representative to handle the administration of the estate, trustees to administer any trusts created within the document and, when necessary, guardians for minor children. A properly designed will should help avoid problems in the probate process and minimize estate tax liabilities. In the absence of a will, state intestacy laws will determine who receives your property and in what manner; and the probate court will determine who serves as personal representative, trustee and, most importantly, guardian for minor children.

2) Durable Power of Attorney for Each Spouse
This is a document that names a person who will make decisions for an individual in the event of that individual’s incapacity. Generally a spouse is appointed to serve in that role (called the “agent” or “attorney-in-fact”). A power of attorney should grant broad powers including gifting powers that enable the attorney-in-fact to continue any prior pattern of giving to family members and charities. The purpose of the Durable Power of Attorney is to avoid the need for a guardianship proceeding when a spouse becomes incapacitated. Such proceedings can be prolonged and expensive.

3) Health Care Power of Attorney, Living Will or Advance Directive for Each Spouse
A Health Care document is a Power of Attorney which appoints a person to make health care decisions for one who is incapacitated. It deals solely with health care matters and may provide a binding expression of the maker's intent that life support be terminated when faced with an irreversible or terminal condition. This document may also be used as the vehicle to carry out an individual's wishes regarding organ and tissue donation and other such end-of-life decisions.

4) Adequate Life and Disability Insurance
Adequate life insurance coverage should be maintained in order to provide for payment of debts (i.e., a home mortgage), survivor income, children's college education expenses, payment of burial and funeral expenses, estate taxes (if any), and other estate settlement costs. Maintaining adequate disability income insurance is also important to replace the earnings of a disabled spouse, whether such disability is permanent or only temporary. Although many individuals are covered by group disability policies maintained by their employer, these policies are often inadequate to provide the amount of disability income actually required.

5) Estate Tax Planning
For individuals with larger estates (i.e., estates in excess of $3.5 million, or in Maryland $1 million), special planning measures should be taken in order to preserve wealth and reduce estate taxes. These strategies often entail:

  • Wills with a “Family Trust” or "By-Pass" Trust
  • Splitting assets between spouses to assure maximum use of estate tax exemptions
  • An annual gifting program to heirs

Estate Tax Planning also involves the use of various trust strategies, such as:

  • Family Gift Trust
  • Irrevocable Life Insurance Trust
  • Qualified Personal Residence Trust
  • Marital Deduction (QTIP) Trust
  • Charitable Remainder Trust

6) Charitable Planning
People often make annual contributions to their favorite charities during their lifetime. For such folks consideration should be given to establishing a means (whether it be under a will, IRA beneficiary designation or otherwise) to provide a continuing level of support to these favored charities following an individual's death. In addition to making a simple bequest to charity under a will, there are various other planning options through which an individual may achieve his or her charitable goals while obtaining both income and estate tax benefits.

In summary, by establishing a well thought out estate and wealth preservation plan, one may avoid the need for "crisis management" during a very stressful time and provide family members with a sense of financial security. It is an alarming thought that most adults do not have even the most basic estate planning documents or plans in place.