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Wealth and Estate Planning

Updated: Mar 17, 2021

Most people think estate planning is only for high net worth individuals (HNWI) but this assumption is very misleading. Although HNWI may have more aspects to consider, estate planning is for whoever would like to maintain control of how his/her assets whilst alive and also how they are handled upon one’s death.

Regardless of how much wealth you own, I have compiled a list of important tasks to consider when thinking of estate planning:

Creating or updating a Will- By writing a Will one can control what happens to his/her possessions when he/she is no longer among the living. Preparing a Will is even more important when a couple has been previously married, and this is their second marriage. This is especially significant when there are no mutual children involved, and both sides have assets that they would like to transfer to their own children.

In Israel, as in most common law countries, one has the freedom to bequeath the assets as he pleases. In most civil law countries and Islamic jurisdictions, there are forced heirship provisions, that restrict the individual’s freedom to choose how their property is divided upon death and confer an automatic entitlement of a portion of the estate to the deceased’s family members.

In Israel, in absence of a Will, the Inheritance Law (5725-1965), (hereinafter: “the Law”), determines the successors. The same should apply in the United States. Every state has laws that direct what happens to property when someone dies without a valid Will and the property was not left in some other way (such as in a living trust). Generally, only spouses, registered domestic partners, and blood relatives inherit under intestate succession laws; unmarried partners, friends, and charities get nothing.

Trusts- A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries, and to make distributions to beneficiaries according to specific instructions mentioned in the trust.

Although, the trust institution has been recognized under the Israeli legal system since the 1920s, it is less common in Israel as an estate planning tool, since creating a trust has significant tax consequences. Therefore in Israel, if a trust is needed it will will usually be created upon death as a testamentary trust, and as part of the will itself.

In the Unites States and other common law countries a trust is traditionally used for minimizing estate taxes and can offer other benefits as part of a well-crafted estate plan. Once assets are put into a trust, it is outside of your estate and as such, it should not be subjected to estate tax or to probate. You can establish a trust that takes effect during your lifetime or upon your death.

Preparing an Enduring Power of Attorney (EPA) - Israeli law has recently changed the way it deals with the elderly and incapacitated by empowering them with a legal option that enables them to decide how they would like their medical and personal affairs to be handled when they are still alive but cannot deal with their affairs themselves due to lack of mental capacity. This can be caused either by an illness (such as dementia) or due to an accident that stripped them of their mental capabilities.

The EPA is created in order to grant the appointer full independence to choose their own future course of care of their personal matters/financial matters, and/or health issues and giving these instructions to be attended to by an appointee of their choice which is usually a close friend or a family member.

As opposed to a regular Power of Attorney, which is no longer valid, once the appointer is still alive but no longer mentally competent, the EPA comes into effect exactly at that time.

In the United States- it is important to make sure your end-of-life documents are up to date. Those include living wills, health care proxy and a financial power of attorney. A living will spells out your wishes concerning medical care or end-of-life decisions, steps you want taken and steps you don't want taken. A health care proxy is a document with which you designate another person to make health care decisions for you if you become unable to do so. Your financial power of attorney goes to the person you authorize to handle your finances when you're unable to. Each of those is a different tool for assuring that your wishes are implemented when you are alive but may not be able to speak for yourself

Preparing or updating beneficiary designations in pension and savings accounts: This is another important step in financial planning, especially for retirement accounts. In Israel, payments through these accounts are made upon death, and are not considered part of the estate unless stated as such in the will (Clause 147 of the Law). In the United States it is important to keep your beneficiary designations up to date because named beneficiaries on insurance policies and retirement plans (IRA’s), may supersede instructions in wills.

Israel bank accounts with a "longevity clause”: The term "surviving" or "longevity clause" is a clause that should appear in the account opening agreement, in which it is determined that after the death of one of the partners on the account, the other partner may continue to operate the account. The purpose of this section is to prevent the freezing of the account following the death of one of the partners, and to allow the surviving partner to carry out only routine activity until the issuance of an inheritance or probate order.

The "longevity clause” applies only to the relationship level between the bank and its clients and does not change the ownership relationship between the holders of the joint account or between themselves and their heirs. It is important to note that the clause in itself does not transfer the ownership of the deceased half of the account to the surviving holder, since the instructions in the bank forms do not act as a will. This can be achieved only after showing the bank a will or inheritance probate.

Reviewing investment plans: What if you've grown more conservative as you age and approach or enter retirement? What if you want to reduce your exposure to stocks and shift more of your money into bonds? It is always good to check your investment plans periodically.

The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.

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