Ah, now we waltz into the gentle exercise of planning for your death, or perhaps worse, a dive into the cognitive abyss.
Estate and asset protection planning fundamentals
This series of article posts – and those on asset protection planning which are highly related and should be considered at the same time as estate planning– primarily deal with educating you on the fundamentals of estate planning and critical concepts, with some advanced stuff thrown in.
Tax should be considered in all estate and financial planning
While we touch on tax, I save the heavy duty tax planning for other article posts. Tax is a critical planning objective of smart planning, but to properly harness it you must understand the underlying mechanisms. I try hard to make it light, easy and fun. When you are done, you will understand more than nearly all the rich folks I’ve ever met, and, sadly, many if not most of the CPAs and attorneys I’ve met in my decades of practice.
Ready to catch some pearls? Here we go!
I am going to start with a very brief overview of a typical optimal estate plan with asset protection features. For those that want more guidance – or more explanation of the underlying concepts – please continue with the rest of the article.
Others may choose to skip ahead to the asset protection section, but note there is a very clear explanation of the what and whys of trusts later in this section for those that want a primer.
Trusts – the cornerstone of estate planning. Living vs. testamentary trusts.
Trusts are the centerpiece of prudent estate planning. You want living trusts, the kind that operate while you are alive.
Shortcomings of trusts set up in your will
Testamentary trusts – the ones created at death by thick wills – often aren’t worth the paper printed on. They typically don’t cost any less, but they forfeit many of the advantages of living trusts, like privacy, tax savings, asset protection, and more, including avoiding expensive legal fees for probate. I suspect banking on the latter is the reason so many attorneys write them. To be clear, they guarantee probate, a messy, expensive, and public process.
Why you want a living trust
Trust me, you want living trusts, and you want to make sure your assets are either titled directly to the trusts, or beneficiaried to them.
Include continuing trust provisions for generational control and protection
The trusts need to be written to control taxes, and to control disposition of the assets the way you want, like reasonable lifetime income to your second wife, but significant assets passing intact to your kids and grandkids from previous marriages.
You probably want to build features for continuing trusts down the generations, so the money stays in trust for asset protection and tax and disposition control.
Dynasty trust and asset protection provisions
Using dynasty features for this can ensure tax avoidance further out than you can think, if you do it right, until the world is ruled by machines, or damned dirty apes. And you will want layers of protection, like having investment and bank accounts held in asset protection holding companies, themselves titled to the trusts. Lots of detail on that in other article posts on this site.
Powers of attorney, health care powers, and living wills
You want to make sure you have what I call the “three powers” – powers of attorney, health care surrogate, and living will – done with your estate planning. The health care surrogate/power of attorney is another way to say health care power of attorney, letting another make medical decisions if you cannot. All should be reviewed regularly with your planner and attorney and adjusted/freshened as needed.