A column on personal finance prepared by the Virginia Society of Certified Public Accountants


(October 22, 2003) - A carefully conceived estate plan can be one of the most important gifts you give to yourself and your loved ones. An estate plan provides peace of mind for you and gives clear direction to your loved ones about your wishes. It may also help you reduce or avoid estate taxes and preserve more of your hard-earned assets. The Virginia Society of CPAs outlines the steps you should take as part of the estate planning process.

› Make a Will

Writing a will is the only way you can ensure that your assets are distributed according to your wishes to family members or other beneficiaries. With no will in place, state law determines what happens to your property. A will also lets you place certain conditions on your assets, such as holding assets in trust for your children until they reach a certain age. Without these conditions, your children will receive their inheritance outright at age 18.

A will also allows parents to name a guardian who will care for their minor children should something happen to both parents. In the absence of this provision in a will, the court will appoint a guardian for the children.

› Determine How Individual Assets Should be Distributed

Don’t underestimate the importance of this step and don’t assume that family members will work things out among themselves. Instead, you should openly discuss with the individuals involved your desire for them to have items of sentimental as well as monetary value. This avoids misunderstandings and helps to ensure that your treasured possessions go to the person(s) you have in mind.

› Review and Update Your Beneficiary Designations

Life insurance policies, retirement plans, and payable-on- death (POD) accounts are all considered contracts in the sense that the beneficiaries you designate will inherit these assets directly, regardless of what your will states. Make sure you update your beneficiary designations after a marriage, divorce, or other major life event.

› Select a Qualified Executor for Your Estate

An executor is responsible for paying your debts and distributing your assets in accordance with your will. The most obvious choice for many individuals is their spouse or oldest child, but you may want to consider other options, particularly if settling your estate is likely to be a lengthy or complicated process. A professional executor, such as a CPA or other trusted advisors, will be more experienced at administering estates and also add the benefit of impartiality in distributing your assets.

› Make Sure Your Family Members Know Where to Find Vital Documents

It’s a good idea to prepare a list that shows where all important documents and assets are stored. This should include birth, marriage and death certificates, especially of children, spouses and other potential heirs. You will also want to include important financial records, such as stock certificates, insurance policies, and retirement account statements. Be sure to provide your executor with the names of your attorney, CPA, stockbroker, and other advisors.

› Take Advantage of the $1,000,000 Estate Tax Exemption

Federal estate taxation rates are among the highest tax rates in America, so it’s important that you carefully plan the disposition of your estate. The estate-tax exemption allows you to leave bequests worth up to $1 million free of any federal estate tax to beneficiaries other than your spouse or charities. If you're married, you and your spouse are each entitled to separate $1 million exemptions. The current $1 million figure is scheduled to increase in stages over the next few years: to $1.5 million effective January 1, 2004, $2 million in 2006, and $3.5 million in 2009. Currently, the estate tax is scheduled to be repealed in 2010, but to return in 2011 unless the law is changed in the interim.

› Maximize the Annual Gift Tax Exclusion

To minimize future estate costs, you can make annual tax-free gifts of $11,000 each to any number of individuals. Couples can give combined gifts of $22,000 per recipient. In addition, the future appreciation on the gifted assets will be transferred out of your estate.

› Make a Living Will

Also known as an advance healthcare directive, a living will expresses to your family and to your healthcare providers what medical procedures (life-prolonging, pain-relief, etc) you do and do not want and those you do not want performed in the event you are unable to express these desires yourself. You can also appoint a “healthcare proxy” to make decisions on your behalf that are not covered by your living will. Discuss your desires with your family and your healthcare proxy.

› Draw up a Power of Attorney

If you are incapacitated or otherwise unable to take care of your financial affairs, a durable power of attorney will give a trusted individual the ability to pay your bills and manage your affairs during your incapacity. Your will has no effect during your lifetime and a living will only addresses your medical affairs. Durable powers of attorney fill in the end-of-life planning gap and avoid expensive court proceedings to have a guardian or conservator appointed to handle your affairs.

In Summary

An effective estate plan requires the advice and experience of professionals skilled in estate planning. It also necessitates thoughtful planning not only about the distribution of your property, but also, about how you want to manage certain healthcare issues. A CPA can work with your attorney and other professionals to build an estate plan that meets your objectives.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

Lifetime Financial Planning, LLC

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia, 20171

208 South King Street, Suite 201, Leesburg, Virginia, 20175

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