K—The Estate Funnel

The estate funnel helps to explain the types of property found in most estates, the problems often encountered in settling an estate, and the objectives of estate planning.

All property is created in one of two ways, either people at work or capital at work. Wages are the product ofpeople at work, while interest, dividends, and capital appreciation are the products ofcapital at work.

The property found in most estates generally falls into one of five categories:

Personal property, such as furniture, cars, jewelry, cash, bonds, savings, and other personal effects.

Real estate, such as a home, a vacation house, land, and rental property such as apartments or office buildings.

Business interests, in the form of closely held corporations, partnerships, or sole proprietorships.

Life insurance, either group insurance or individual policies.

Government benefits, such as social security, disability, retirement, and survivor income benefits.

Unfortunately, at death there is often a great deal ofCONFLICT. This occurs due to the differing and conflicting ways in which many of these assets pass to the family or other heirs. For example, personal property can pass by will, by state law if there is no will, by title, or by trust. Real estate and business interests may also pass by all of these means, as well as by agreement. Generally life insurance passes by beneficiary designation, and government benefits by federal statute.

These conflicts, together with the generally slow probate process, can easily result in aDELAYof1 to 2 years or more.

ConsiderableEXPENSEmay also be incurred during the estate settlement process. For example, existing debts must be paid. There are also medical expenses, funeral expenses, attorney fees, income taxes, and estate taxes. The final result is often ashrinkage of 30% or moreby the time an estate is passed to the surviving family.

The basic objectives of estate planning are to provide for the orderly and efficient accumulation, conservation, and distribution of an estate, whileavoiding conflict,shortening delays,andreducing expenses.