Preserving your wealth and family harmony long after you are gone.

When you think of your legacy, what comes to mind? Is it a happy, prosperous family reminiscing around the dinner table? Or do you worry about what will happen with your assets or your family’s future? Do you hope to leave some money to charity or an alma mater?

Whatever you envision, having an estate plan will make a significant difference in ensuring that the assets you worked so hard to build over your lifetime have your desired impact. “Estate planning is a process designed to help people manage, preserve and grow their assets while they’re alive, and to provide for the efficient and orderly disposition of their assets — partly during their life, but entirely after death — according to their unique goals and objectives,” says Baker Crow, Senior Vice President of Private Wealth Management for Regions.

Conventional wisdom holds that sophisticated estate planning is most relevant for families with estates that will likely face the federal estate tax, which currently exempts $5.34 million of an individual’s estate (double that for married couples). But even families with far less than the exemption limit may get hit with state-levied estate or inheritance taxes, which sometimes have exemption limits of $1 million or less. And Congress could always change the federal estate tax exemption amount, as it has several times.

Even if you’re unlikely to pay such tax, estate planning is key to ensuring that you have some control over how your assets are distributed. It also helps prevent your property from having to be divided through a state-dictated disposition, the results of which may be different from what you desire.

First Things First

The estate planning process begins with a few key steps, Crow says:

• Taking inventory of your assets and liabilities. You may also need to devise a plan for repaying your debts.
• Deciding who will be your beneficiaries — family, friends, charities or others — and how you would like to benefit them.
• Building your estate team. This will include an attorney, who will draft the estate planning and related legal documents. It may include your accountant, because of the importance of taxes in the process. Finally, it includes your Regions Wealth Advisor, who understands your financial situation and goals.
• Choosing the personal representative of your estate and the trustee of any trusts you establish.

This last step may be the most important one you take. Many people designate a family member as a personal representative or trustee because of his or her intimate knowledge of family affairs, and because a family member usually does not charge a fee. But this is not always a wise move, Crow says. Managing an estate properly requires strong skills in asset and liability management, taxes and accounting, as well as knowledge of estate laws. A family member without extensive experience in these areas may find the role burdensome, and might even squander the estate’s assets, however inadvertently.

Adding to the role’s complexity, the personal representative or trustee acts as a “quarterback” for your estate planning team and is responsible for important decisions after your death, such as determining how assets are invested and prudently exercising his or her discretion as dictated by the document. “Even the best planning will fail if it isn’t implemented properly,” Crow says.

The trustee’s role is also highly sensitive because he or she controls the trust’s purse strings. For example, naming a child trustee of a family trust might provoke feelings of unfairness or frustration on the part of the other children and cause needless family conflict. Likewise, naming a spouse as trustee could overindulge a child who has been too dependent on his parents’ largesse. By contrast, a third-party trustee such as a bank professional can act as an experienced advisor who will execute your wishes impartially after you’re gone. Crow says the importance of this selection cannot be overlooked because the future support of your family may rest upon the performance of this person.

When designing the estate plan, it’s important to envision a variety of scenarios and give the trustee some leeway to accommodate them, Crow says. Let’s say one of your children is irresponsible with money; as a result, you allow him to only draw income (not principal) from the trust. What if he got seriously injured or ill and was unable to work? What if his own family had been relying on his income? The estate plan should probably allow the trustee to distribute funds from the principal in such a circumstance.

Estate planning takes on an additional dimension for business owners. Without a proper succession plan in place, a business could quickly collapse after its owner dies, Crow says. “Not only does the family that relied on the business suffer, but so do all the employees.” As a result, he adds, business succession planning is integral to estate planning. Business owners should consider disposing of the business while they’re still alive, whether that means transferring it to current managers (inside or outside the family) or selling it.

Many families have unique estate planning goals. One of the best tools for accomplishing those goals is a trust. To learn more about this tool, read Trust Matters.