Phase 1: Phase 1 of the estate planning process normally involves drafting the documents to carry out your wishes as to the disposition of your property after your passing. In addition to the Will itself, which is the document that takes effect after your passing and includes your instructions as to what happens to your property, we also normally draft a Durable Power of Attorney, a Health-care Directive, and a Durable Power of Attorney for Health-care Decisions. Sometimes, we also draft a community property agreement if it fits in with the overall estate plan. Following is a brief definition of the major documents we prepare in Phase 1.
In Phase 1, in addition to drafting the documents, we also prepare an asset list which sets out and values the assets that you own and the liabilities you have. We use the asset list to calculate a projected federal estate tax and to spot assets which may be passed outside of probate and, therefore, need to be dealt with separately. We attempt in Phase 1 to draft the documents in a manner which minimizes te federal estate tax.
Phase 2: In Phase 2, we work on strategies to reduce the projected estate tax. Normally, these strategies involve either reducing the estate itself or providing some method to pay the federal estate tax (or combination of the two). As for strategies to reduce the estate, we normally discuss gifting programs, ranging from the simple, outright gift to more complex gifting strategies such as limited liability companies/family partnerships and qualified personal residence trusts. In the area of paying the federal estate tax, we normally look at the current liquidity of the estate (given the asset nix) and we often discuss providing liquidity through the use of insurance.
Generally, Phase 2 will begin only after we have completed Phase 1.
