What it means
Estate planning is the process of arranging who receives your assets, when they receive them and under what conditions. A trust is a legal arrangement in which one party, the trustee, holds assets for the benefit of others, known as beneficiaries, according to written rules.
A Chartered Trust and Estate Planner has studied the building blocks of this field. These typically include wills, different types of trust, powers of attorney, tax treatment of gifts and inheritances, business succession and the role of life insurance in providing cash when it is needed.
The business angle is often overlooked. If an owner dies without a plan, the shares in a private company may be frozen, split among heirs who have no interest in the business, or sold in a hurry to cover tax.
Good planning keeps control clear and provides liquidity, meaning ready cash, to settle obligations. Trust structures can serve many purposes, from protecting assets for children to supporting a charity or ring-fencing a family home.
Each has legal and tax consequences that vary by country, which is why the adviser, a lawyer and an accountant often work as a team. Planning is not a one-time event.
Marriages, births, deaths, business sales and changes in law all call for a review, and a plan that was sensible ten years ago can be wrong today. The designation shows study, not authority to give legal advice.
Documents such as wills and trust deeds must usually be drafted by a qualified lawyer, so the planner's role is often to coordinate, explain options and ask the right questions.
In practice
Real-world examples.
Example
The founder of a family-owned construction firm wants his two children to inherit the business, but only one works in it. His planner proposes a trust holding the voting shares for the active child and life insurance proceeds to equalise the inheritance for the other. The founder takes the proposal to his lawyer for drafting.
Example
A doctor in her fifties sells her clinic for $3,000,000 and wants to give part of it to charity and part to her grandchildren. A planner explains how a trust could pay out over time and how the gifts might be treated for tax. She uses the discussion to brief her accountant.
Example
A couple with a child with special needs worries about how to leave money without affecting benefits. Their planner explains that a specially designed trust can provide support while protecting eligibility. They arrange a meeting with a lawyer who handles this type of trust, and the planner prepares a list of questions for them to bring. The couple leave with a clear checklist of documents to draft and sign.
Case study
Seen in the real world.
Cedar Ridge Orchards is an illustrative, fictional family farm run by a widower and his daughter. The farm owned land worth far more than its yearly profit, and the father had never made a will.
A neighbour's farm had recently been broken up after a death, so the family hired a planner who held the Chartered Trust and Estate Planner designation. The planner mapped the assets, listed the likely tax bills and showed that, without a plan, the daughter might have to sell part of the land to pay them.
With a lawyer, the family set up a trust to hold the land, a will to match it, and an insurance policy to provide cash for expected costs. The family also agreed to review the arrangements every three years and after any major event such as a marriage or a land purchase. The illustrative lesson is that estate planning is about keeping a business running smoothly, and that the cost of advice is small beside the cost of a forced sale.
Watch out
Common mistakes.
- Believing that estate planning is only for the very wealthy, when anyone with a family, a home or a business can face problems without a plan.
- Writing a will or trust once and never updating it after a marriage, divorce, birth, death or business sale.
- Naming a trustee or executor without checking that the person is willing, capable and likely to outlive the arrangement.
Questions
People also ask.
What is the difference between a will and a trust?
A will takes effect on death and sets out who receives your assets, whereas a trust can operate during your lifetime and after it, with a trustee managing assets under written rules.
Does a planner replace a lawyer?
No, because legal documents must normally be drafted by a qualified lawyer, and the planner usually helps to coordinate and explain the options.
When should a business owner start succession planning?
As early as possible, since transfers of ownership, tax planning and training a successor can take several years to complete, and a rushed plan is usually more expensive than a gradual one.
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