Traditionally, estate planning has involved arranging for the transfer of a person’s assets upon their demise, but more often this is being done while the estate owner is still alive so as to spare the beneficiaries the often lengthy and costly probate process. Although some people associate estate planning with the wealthy, anyone who owns any type of property, including real estate, securities, retirement accounts, bank accounts, and insurance policies, and wants to control what happens to that property, needs an estate plan.
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For some people, an estate plan may be as simple as a will, health care directives, life insurance, and making sure all financial assets have a named beneficiary. People with more assets to distribute may want to look at using trusts or making gifts while still alive.
Although tax considerations can be part of estate planning, only high net-worth individuals have to be concerned with estate taxes. In 2011 and 2012, only estates of more than $5 million are subject to estate tax.
Estate planners may be attorneys, accountants, financial planners, insurance agents, or trust bankers. While some parts of an estate plan, such as wills, are best handled by an attorney, financial advisors can help in areas such as insurance and financial investments.
Estate Planning Trusts
A trust is a legal entity into which the creator (called a grantor, donor, or settlor) can transfer ownership of financial assets and other property. A trust doesn’t go through probate when the owner dies, but rather directly passes trust assets to a beneficiary. Trusts are harder to contest than wills, although, even with an established trust, individuals still need to have a will.
The grantor appoints a trustee, who is a person or entity, such as the trust department of a bank, to manage the trust. The grantor also designates a beneficiary who receives benefits from the trust. Sometimes, the grantor, trustee, and beneficiary are the same person, in which case, the grantor also appoints a successor trustee to manage the trust when the grantor dies or becomes incapacitated. Upon the grantor’s death, either the trust begins to provide income to the beneficiaries designated by the grantor or the successor trustee dissolves the trust and distributes the property it owns to one or more beneficiaries.
A trust created while the grantor is alive is a living trust. Revocable living trusts, the most popular type of trust, can be changed at any time, while irrevocable living trusts cannot be changed. However, irrevocable trusts have tax shelter benefits that revocable trusts don’t have.
Another type of trust is the testamentary trust, created by a will after a person’s death. Often, these trusts are used to provide for minor children or other persons not capable of managing their own financial affairs. Also, many other types of trusts are available for specific purposes, including:
- Charitable trusts for donating money to charity
- Bypass trusts, also called credit shelter trusts, which put assets in trust for the surviving spouse rather than passing ownership of assets directly to the spouse. This tool is primarily for high-asset couples where leaving assets directly to the surviving spouse would cause that person to have an estate that exceeds the amount of estate tax exemption allowed upon death.
- Spendthrift trusts designed to provide income for heirs without giving them access to the trust’s assets
- Life insurance trusts that own life insurance policies
Estate Planning Education
Estate planners can come from a range of backgrounds, including personal financial advisors, Certified Public Accountants (CPAs), insurance producers, and lawyers, so the required education varies. Getting into estate planning without at least a bachelor’s degree is almost impossible. Degrees in accounting, business, economics, finance, financial planning, insurance, or law are good educational choices.
Some colleges offer certificates in estate planning, and some law schools offer a master’s degree related to estate planning.
Estate Planning Certifications
The American Academy of Financial Management (AAFM) offers the Chartered Trust and Estate Planner (CTEP) designation. Requirements include three years of estate planning and trust experience and one of these credentials:
- An undergraduate or graduate AAFM-approved degree in accounting, finance, financial services, tax, or law; or an MBA, MS, PhD, JD, or CPA from an accredited school or organization
- Five or more related, approved courses from a business or law school accredited by either the Association to Advance Collegiate Schools of Business (AACSB), Accreditation Council for Business Schools and Programs (ACBSP), Equis, or the American Bar Association (ABA) or from an AAFM-sanctioned program
- Completion of AAFM Executive Certification training from the Thomas Jefferson School of Law
Applicants must also pass an exam; the type of exam depends on which educational requirement the applicant meets. The continuing education requirement for the CTEP is 15 hours each year.
The National Institute of Certified Estate Planners offers the Certified Estate Planner (CEP) designation. Applicants for the program must have a current financial, tax, or legal license, or may be granted admission based on a related professional interest. Accepted applicants must then complete self-study materials and an interactive discussion of the course highlights, either live or online, before taking the required exam. Maintaining the CEP requires eight hours of continuing education in estate planning every two years and adhering to the code of ethics.
Estate planners can also go through the National Institute for Excellence in Professional Education to get the Certified Specialist in Estate Planning (CSEP) designation. To determine if an applicant qualifies, the institute uses a point system that looks at education, experience, licensing, and professional designations. Applicants must have at least 40 points. Accepted applicants must then complete six required and two elective courses and pass an exam specific to each course.
The Accredited Estate Planner (AEP) designation is available through the National Association of Estate Planners & Councils. Applicants must currently be offering estate planning services, have at least five years of experience, and hold one of the following:
- Current license to practice law as an Attorney (JD)
- Current license as a Certified Public Accountant (CPA)
- Chartered Financial Consultant (ChFC) from The American College
- Certified Financial Planner (CFP) from the Certified Financial Planner Board of Standards
- Chartered Life Underwriter (CLU) from The American College
- Certified Trust & Financial Advisor (CTFA) from the American Banker’s Association
AEP applicants must complete two graduate-level courses through The American College, one in advanced estate planning and one approved elective, or pass two 2-hour exams. The continuing education requirement is 30 hours every two years.
Estate Planning Salary
Because estate planners can come from so many different professional backgrounds, reliable salary information is best derived by looking at salary averages for the professionals who most often establish estate plans. The following represents figures published by the Bureau of Labor Statistics in May 2010:
- The national mean salary for lawyers as $129,440, with the middle 50 percent earning between $75,200 and $165,470.
- The national mean salary for personal financial advisors was $91,220, with the middle 50 percent of them earning between $42,100 and $111,990.
- The national mean salary for accountants, including CPAs, was $68,960, with the middle 50% earning between $47,990 and $81,290
- The national mean salary for insurance producers, including life/annuity producers, was $62,520, with the middle 50 percent earning between $33,330 and $71,620.