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You can, of course, decide to leave what happens to your estate after you die totally up to chance (or, more accurately, the complicated set of state laws that will apply if you haven't done the estate But chances are that the two fundamental goals of estate planning — protection and control — are uppermost in your mind.
Going beyond the general idea of protecting your possessions and being in control of what happens to them, you should have some very specific objectives that you're trying to accomplish with your estate planning, such as:
Providing for your loved ones. You have people like your spouse or significant other, children, grandchildren, and parents who may rely on you for financial support. What will happen to that financial support if you were to die tomorrow? You absolutely need to pay attention to all the little details of protecting your family members if you die. Specifically, if your loved ones include former spouses, children living in another household, stepchildren, adopted children, divorced and remarried parents, or an unmarried partner, then you have a lot of decisions to make with regards to your estate about who gets what.
Minimizing what your estate will have to pay in estate taxes. Yes, we know that estate planning involves much more than the inheritance and estate (death) taxes, but make no mistake about it, death taxes are certainly a consideration. Why pay more than you have to? You can take several steps — such as giving gifts while you're still alive — to reduce the value of your estate and therefore reduce the amount of death taxes that will have to be paid.
Protecting your business. Politicians love to talk about the small business owner or the family farmer when describing how they are "a friend to the little guy”. The fact remains that if you own a small- or medium-scale business, such as a retail store or a farm, that business can be turned topsy-turvy if you die without a solid estate plan in place. (You want to make sure that your farm is protected after you've "bought the farm.")
Sure, it's human nature to just let things happen. You're very busy with your career and your family. After all, do you really want to dwell on morbid thoughts such as your own death?
You really can't take any of your property with you; you do leave behind people and institutions (charities, foundations, and so on) that you care about along with all of your possessions. Why wouldn't you want to take the time to appropriately match up your property with those people and institutions?
Besides, estate planning is as much (if not more) about what you do during your life to manage your estate than what happens after you die. Sure, it makes good theater to have a deathbed scene where the aged family patriarch or matriarch dictates what will happen to the vast family fortune, but the place to begin your estate planning isn't on your deathbed! That last-minute approach usually opens up the probability of one or more disgruntled family members trying to overturn your dying words. More than likely, due to the result of your lack of estate planning, your estate will dwindle away through legal fees and taxes in excess of what should have been paid. Not to be morbid, but if you were to die suddenly and unexpectedly, you may not even have the "opportunity" for that dramatic deathbed scene. If you haven't done your estate planning, then chances are nobody in your family will have any idea of what you want to happen to your estate.)
Trusts for High Net WorthNeed more? How about the game that the United States Congress is playing with the federal estate tax? As part of the estate tax laws, you have an exemption — an amount that you may leave behind that is free of the federal estate tax. (The estate tax doesn't kick in until your estate exceeds the exemption amount).
For federal estate tax purposes, your estate planning is actually a moving target between now and 2011. If you were to die between now (the time you're reading these words) and 2011, the amount of federal estate tax could be all over the map if your estate is very valuable. Indeed, if you die in 2010, then under the current law you won't owe any federal estate tax; however, if you die in 2011, you could owe a lot. Now most people won't try to work "Dying in 2010" into their estate plans for the sole purpose of saving money on federal estate taxes, but the point is that you really need to stay on top of your estate-planning activities to try and minimize the amount of those taxes.
However, sometimes you are better off not leaving your entire estate to your spouse, especially if your spouse also has a sizable estate (not only property jointly owned with you, but personal property that only your spouse owns). Why? Because then your spouse (assuming you die first) now has an even larger estate, which is then subject to a potentially larger tax liability than if you had done something else with your estate. Basically, your children or whomever else you and your spouse are leaving your respective estates to will likely be stuck with paying more in federal estate taxes just because you decided to take the easy step with your estate and leave it all to your spouse.
Many states also impose inheritance and estate taxes, which your estate pays in addition to federal estate taxes.