By Dan Barney

Estate Planning and the Law

The purpose and objective of planning should be unique to each individual or family. In some instances, planning is designed to provide for the specific, individual needs of a future generation.

Although this can include a long list of needs, the following are common objectives:

1. Provide for the education of children or grandchildren.

2. Provide for the support of a handicapped person.

3. Provide for the continuation of a family business, farm or ranch.

4. Provide tax-free life insurance proceeds to pay estate tax on your estate or to otherwise provide income for your family.

5. Provide for a regular and continuing income stream to children or grandchildren.

Of the above, the specific objectives included in Items 1-4 are usually the most rewarding.

Item 5, which provides broad, general support to your descendants, has been common in very wealthy families, but has in some cases resulted in “Trust Babies” who have low motivation and limited incentive to succeed.

Most current thinking favors future planning that provides motivation and incentives to reward accomplishment.

• Educational Purposes. The use of an educational trust, created as a separate trust or via terms of a will, is commonly used because it encourages a positive purpose in your descendants.

The use of a separate trust has been made less important in recent years because the government has also encouraged the positive goal of education by providing special tax incentives via 529 Plans.

Such plans enable tax sheltered investments for children and grandchildren and should be “maxed out” if possible. These plans have great flexibility even permitting a change of the beneficiary if circumstances change.

• Special Needs Trusts. Individual trusts can be established to provide for the welfare of handicapped individuals. There are special provisions that can sometimes permit the use of such trusts without jeopardizing other government assistance programs.

• Family Legacies. In some cases, a family desires to insure that a home, property, business

or ranch remains in the family. Use of a Limited Liability Company or Family Partnership can be appropriate.

In other cases, the property can be placed into a trust with specific terms governing the operation and administration of the property. Some tax benefits can be derived from the gradual transfer of this property.

• Life Insurance. Life insurance proceeds pass tax-free to the named beneficiaries.

This special feature (perhaps due to the lobbying strength of that industry) makes life insurance a particularly suitable tool for passing wealth if your estate may be of sufficient size that estate taxes will be paid.

In such cases, the cost of the purchase decreases your estate size, while the proceeds pass tax-free to your beneficiaries. They can then use the money to pay your estate taxes or for other purposes of their choice.

Creative individual planning can, thus, result in special benefits to future generations and enable you to provide some direction and incentive to your descendants.

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