Estate Planning Can Provide Financial Benefits as Well as Peace of Mind.

You already have an estate plan, even if you have done nothing.

The possible problems with your plan may be 1) assets may not pass according to your wishes, 2) the federal government and the state in which you live may get much of what you own, and 3) your family and friends may suffer undue inconvenience.

Many people feel that estate planning is an unpleasant and morbid subject. They put it off because they are "too busy" or because they think they don't own enough assets for planning to matter, or because they don't like to think about death.

There is no doubt that estate planning can raise some difficult emotional issues. Unfortunately, if you ignore those issues now, you may cost your family thousands or even millions of dollars later, as well as cause considerable anguish. Proper estate planning takes far less time and effort than most people imagine, and it can give you tremendous peace of mind.

How much do you own? It seems like a simple question, but often it is not. When most people think of what they own -- their estate -- they think about things, such as their house, the car, the computer, or a diamond necklace. These things are all part of your estate, but don't forget all of your other assets such as the funds in your 401(k) retirement plan, the stock certificate in your safe deposit box, or the life insurance policy that you took out four years ago.

In addition to identifying the assets in your estate, you must also identify and understand the amount or percentage of each asset that you own, and the way in which the property is titled. The laws of each state in which you reside when you acquire the property may affect your ownership in an asset. You must also start by identifying your property; what it is, where it is, and how much it is worth.

Another aspect of estate planning is how property is transferred. Most people understand that a will can be used to transfer their property to someone else after they die. However, that's not the whole story. Property can be transferred in several ways: by contract, by operation of law, and by will and living trust. You should understand into which categories your various assets fall, so you can be sure that your wishes will be carried out.

Suppose your write a will that gives everything to your spouse. You also have a $100,000 life insurance policy. If you die, would he or she get the $100,000? Not necessarily. Life insurance proceeds are transferred by contract. They go to whoever is listed as the beneficiary on the policy, regardless of what your will says. Annuities, IRAs, and employee benefit programs are other examples of assets that are transferred by contract.

Property can also be transferred by operation of law. The way a property is titled may supercede the terms of a will. If you own a house with someone and the title specifies "joint tenancy", your co-owners will own that house when you die, no matter what you say in your will.

Finally, and most importantly, you must use a will, and perhaps also a living trust, to control the transfer of the balance of your property. A will, or a will combined with a living trust, specifies the who, the when, and the how of the transfer of your property when you die, along with other important provisions such as the naming of the guardian of your minor children and who will administer your estate. By dying without such documents, you could cause your family an unnecessary amount of inconvenience.

After you have a basic understanding of how much you own, and the different ways property can be transferred, you can begin to address your estate planning needs. The following is a recommended "disciplined" approach to estate planning, rather than simply focusing on one aspect or problem.

1) Identify the goals

The starting point of a successful estate plan, as with any area of financial planning, is to identify and define yours goals. What is the most appropriate way to dispose of your assets at your death? Who will receive what, and when will they receive it? These are just a few of the many questions you should address.

2) Gather the Data and Make Assumptions

Data includes your current estate planning documents, including wills and trust instruments, beneficiary designations on retirement plans and insurance policies, and title documents that set out the ownership of major assets such as your home. In addition, you need to quantify the value of your assets and liabilities. You must also consider non-financial issues, such as asset management and protection, and the timing of when you want your assets to ultimately ass to your heirs.

3) Evaluate the Feasibility of Your Goals

Most goals dealing with the disposition of assets can be accomplished with estate planning. You cannot, however, completely control how you heirs spend their inheritance. Similarly, in larger estates, some amount of estate taxes may be incurred, even with planning. It may not be possible to meet goals of complete control or elimination of taxes.

4) Develop Your Strategies

Identify the planning documents that must be drafted or revised. Consider the individuals or entities to which you want to entrust your assets after your death. Assess the needs of your family members, including your spouse, parents, children, and grandchildren, in light of your death. Consider the financial security of your survivors, and the adequacy of your life insurance coverage.

5) Implement the Decisions

Effective decision making is meaningless until you turn your words into deeds. In this step, you implement the strategies that you developed. Assign specific tasks to yourself and other family members, and determine whether professional assistance from tax advisers, attorneys, trust officers, or insurance representatives is needed.

The final step is easy to ignore, but is among the most critical. Few decisions are static; we base our choices on a series of events and circumstances that can an do change. Every few years or after a major life event such as a marriage, birth of a child, death of a spouse, divorce, or retirement, you should reconsider the various aspects of your plan. Have your goals changed? Have new and better options become available? Don't be afraid to revise your goals, gather more data, reconsider your choices, make new strategies, or carry out your original strategies differently.

Scott Browning is the Partner in charge of Financial Counseling Services for the West Region of Deloitte & Touche. He can be reached at 213-688-0800.