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Scott Neal

Scott Neal, CPA, CFP, is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach him at or by calling 1.800.344.9098.

Estate Planning: Getting to the Basics

Some of the more difficult conversations for many clients involve creating an estate plan. That is a plan that necessarily deals with what happens when you die. We recommend that it consider these three issues:

  • Liquidity: will your estate have enough cash to pay all your outstanding obligations and to provide for those who depend on you?
  • Taxes: will your estate incur taxes and are there steps that can be taken to minimize those?
  • Control: will your assets wind up being distributed to those people and/or causes in the way, and at the time, that you want them to be?

We have seen that while estate planning may provoke anxiety, putting such a plan on paper and creating legally binding documents ultimately provides peace of mind.

Some people prefer a do-it-yourself approach by downloading documents from a website and filling in the blanks, but this is not likely to be the best option. One reason is because each state has its own set of laws and requirements. You can find various templates online, but some of the documents may fall short of their claim to meet your state’s requirements.

It is crucial that your estate plan meets your state’s legal requirements to ensure your final wishes are honored, so expert help is recommended. Consult with an estate planning attorney to ensure that documents are correctly prepared, avoiding costly and time-consuming missteps.

While we encourage you to sit down with a legal professional, we also want to provide some general guidelines you can think through independently. It is a good idea to have considered these things before you sit down with a professional. Our aim here is to simply provide an outline for your consideration.

1. What do you want to accomplish and what will bring that about?

“Some people prefer a do-it-yourself approach by downloading documents from a website and filling in the blanks. It is crucial that your estate plan meets your state’s legal requirements to ensure your final wishes are honored” — Scott Neal

Will you need to provide for children under 18? Or are your beneficiaries young adults, older adults, relatives, or charities? Exactly how might you want to provide for them?

Options you may want to consider include a will and/or a trust. If you have these documents already, you should review them at least annually.

A trust is a fiduciary arrangement that allows a trustee to hold assets on behalf of one or more beneficiaries. Trusts provide control over the distribution of assets, privacy, and potential tax advantages. They can be arranged in many ways, specifying exactly how and when the assets are used or passed to the heirs.

For example, are you concerned that a young adult might fritter away his or her inheritance? A spendthrift trust might be the answer. Instead of an account that allows immediate access to the assets, the trustee of a spendthrift trust dispenses the assets over time.

Additionally, a spendthrift trust typically protects assets from the beneficiary’s creditors, bankruptcy, divorce, and lawsuits. Is there a need to minimize taxes? An irrevocable trust might fit into your plan. By placing assets into an irrevocable trust, the estate’s value is reduced regarding estate taxes. Besides tax considerations, irrevocable trusts also can help protect assets in lawsuits.

You may also decide to create a living trust, which operates during your lifetime and then transfers your assets to your beneficiaries upon your death and in the manner you specify. It also avoids probate for those assets that are included.

Other trusts that you may find advantageous include charitable trusts, special needs trusts, generation-skipping trusts, and/or bypass trusts. The latter two offer ways to reduce the estate tax.

Even when you have a trust, you will likely also have a will. A will is a legal document that only takes effect upon your death. It outlines your wishes, including provisions for guardianship of your minor children. Trusts can be created inside your will but those will not be funded or become effective until your death. If you have a living trust, you might consider a pour-over will that transfers any assets that are not already distributed to be placed into the living trust.

2. Have you taken stock of your possessions? It’s important to create an inventory of your assets, such as bank accounts, insurance policies, investment accounts, and personal belongings. Our clients who use our online tool for financial planning have access to an up-to-date balance sheet that lists assets and liabilities.

3. Don’t avoid the difficult conversation. If you were to die suddenly, do your loved ones have access to important documents, financial statements, etc.? It is important to inform your loved ones about the location of your will and the legal professionals who will handle the process.

In other words, it’s important to ensure that your heirs won’t be forced to embark on an unexpected scavenger hunt in the event of your unexpected death.

4. Choose the right executor or trustee. Select a trustworthy individual or institution to act on your behalf. You need someone dependable, trustworthy, organized, fair, and financially savvy. Identifying the best candidate can be made easier if you focus on these important attributes. The executor or trustee can be an individual or an institution such as a trust company. It is vitally important that your representative know where to find your documents.

5. Be sure to designate and regularly update your beneficiaries. It’s common to list a beneficiary or beneficiaries for an IRA and life insurance policy.

However, it’s crucial to ensure that your designated beneficiaries align with your will. For instance, if the will you recently drafted has your favorite nephew John to be the recipient of your IRA at ABC brokerage firm, but the beneficiary listed on that IRA many years ago is Susie, Susie will be the recipient of the assets.

6. Prepare for medical decisions. We believe that estate planning isn’t complete unless you prepare legal documents such as a durable power of attorney for financial matters and a medical power of attorney for medical decisions. It is crucial in the event you are incapacitated.

These documents appoint trusted individuals to make decisions on your behalf when you can’t. Once again, state rules are different from state to state, so it’s vitally important that you have legal counsel to advise you on drafting and verifying that your power of attorney is valid. If you have existing powers of attorney, it is also important to make sure that your financial institutions (banks and brokerage firms) will recognize them when they are needed. Remember that if the power of attorney is being used, it is likely because you are suffering some sort of incapacity and won’t be able to explain what you meant when you drafted the document.

7. Update your estate plan regularly. Life is full of unexpected turns. Milestone events such as marriage, divorce, births, and deaths can significantly impact your wishes and create gaps in your plan. In addition, charities that used to hold significance may not have the same impact anymore. Therefore, it is crucial to periodically review and make necessary adjustments to your plan.

While estate planning is something that is very easy to postpone. Resolve to do it now. Let me know how we can help you.

Scott Neal is the president of D. Scott Neal, Inc., a fee only financial planning and investment advisory firm with offices in Lexington and Louisville. You may submit
questions via email to or by calling 1-800-344-9098