You may also need to use additional estate planning tools depending on the size and complexity of your estate such as Trusts, Supplemental Needs Assets, Ownership of Assets, Insurance, and Gifting. These tools may be useful for reducing potential estate taxes, but they can also serve other purposes.  Business owners should also plan properly for business succession in order to reduce the tax burden and increase the likelihood that the business will continue to grow and prosper.

1)   Trusts - Trusts are legal vehicles for managing assets for the benefit of the trust owner or a trust beneficiary, and are typically less vulnerable to legal challenges than Wills. There are over 50 different types of trusts available, but not all can or should be used to save estate taxes.  Trusts can serve many other purposes including:

·        Managing money for an heir who is too young or financially incompetent; 

·        Requiring an heir to meet certain standards, such as being drug free or graduating from college, in order to inherit money;

·        Ensuring that a person’s assets go to their children rather than the surviving spouse’s children from a previous marriage;

·       Reducing income taxes and providing income for the donor while leaving more benefits for the charity;

·        Protecting assets from creditors;

·        Reducing the cost and public exposure of probate; and

·        Controlling the inheritance for a troublesome heir instead of simply disinheriting the person.  Disinheritance often provokes ill feelings not only toward the estate owner but also toward those who actually inherit.

2) Supplemental or Special Needs Trusts - Typically set up to provide benefits for a disabled person without disqualifying the person for government assistance.  The key is that no assets can pass directly to the beneficiary. The trustee - who should not be the beneficiary - can distribute trust funds to pay for things that government programs will not cover.

3)   Ownership of assets - who owns what assets in a family, can have a significant impact on an estate plan. For example, most couples own property jointly, “with rights of survivorship.”  Upon the death of one spouse, the jointly owned property automatically passes directly to the surviving spouse, avoiding probate.

While this is an appropriate choice for many couples, it’s not the best choice in all situations. For example, you may want property separately owned so it can pass into a trust and take better advantage of the estate tax exemption. You may want some property separately owned so that it passes to the children from a previous marriage, or so that a spouse isn’t liable for the other spouse’s debts. Proper titling also can reduce the need for trusts.

4)   Insurance - Insurance can serve several purposes in estate planning: Liability, homeowner’s and auto insurance can protect your estate’s assets from catastrophic loss or lawsuits; Life insurance can be an asset passed on to heirs or charities; Life insurance may be needed to pay for estate taxes; A small-business owner may use life insurance to provide an equitable share to heirs who won’t run the business; Co-owners in a small business often use life insurance to buy out the deceased’s estate. The ownership of life insurance bears careful scrutiny for estate planning. Estate owners often mistakenly own large amounts of life insurance to help pay for estate taxes. While the death benefits are not subject to income tax, they may be subject to estate tax. Consequently, the insurance benefits earmarked to pay estate taxes on other property end up themselves being taxed. One strategy around this is to use an irrevocable life insurance trust, in which the estate owner is the insured but the policy is actually owned by the trust and thus generally not included in the insured’s estate.

5)   Gifting - If estate taxes are an issue, keep in mind less expensive tax strategies than say a trust or buying life insurance. For example, you can give away $11,000 (currently) every year to each person you choose, free of gift tax. A couple could give a grandchild $22,000 a year, for example. You also can pay the tuition bill or a medical bill for a favorite grandchild or niece free of gift tax, as long as you pay it directly to the institution.

Business owners - Estate planning is essential to anyone who owns a business because typically the business is the largest asset in the owner’s estate. Again, this is not just an estate tax issue. Only four in ten family businesses survive after being transferred to the next generation. While estate taxes sometimes play a role in this failure, more often it is due to lack of good succession planning. The owner, for example, fails to groom a qualified successor or tries to divide the business evenly among the heirs, causing control conflicts. Sometimes the best decision is to sell before death and not pass on the business. Like other aspects of estate planning, succession planning involves the issues of mortality and family conflict, therefore planning is frequently postponed until it is too late.