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Why do you need an estate plan? Because having no plan is a plan albeit a poor one. Procrastinating is very common when it comes to estate planning. We associate estate planning with death and we all what to put that subject off as long as possible. But estate planning is not for the dead, it is for the living. Once you are dead, how you planned your estate will be of little concern to you. It is also hard because the first step in estate planning is very personal. You must decide who inherits which assets and when they should receive them. Golden Gate Advisors, Inc. recommends below some of the questions you need to consider: WHO SHOULD INHERIT YOUR ASSETS? 1. If you are married, what do you want to provide for your spouse? 2. Should your children share equally in your inheritance? Maybe one of your children has special needs and should receive a disproportionate amount. 3. Do you wish to include grandchildren or others as beneficiaries? WHICH ASSETS SHOULD THEY INHERIT? 1. Should closely held business stock pass only to those children who are active in your business? Should you compensate the others with assets of comparable value? 2. If you own rental properties, it is appropriate for all beneficiaries to inherit them? Consider each beneficiary's cash needs and ability to manage property. WHEN SHOULD THEY INHERIT THEM? 1. Age and maturity are probably the two most important aspects to consider. Should you have assets placed in a trust, with distributions made over a period of years as beneficiaries mature, or will you want some assets distributed immediately? 2. Should assets be tied up in trusts? Trusts can provide the professional asset management capabilities that an individual beneficiary lacks. On the other hand, trusts can be very inflexible. 3. The size of your estate can affect your decisions. Could too large an inheritance change a beneficiary's personality or ruin the beneficiary's work ethic? For these reasons, large estates often are distributed to beneficiaries over an extended period of time. 4. Should you start a gift program now? There are several benefits to consider among which are: - Tax benefits - Psychological benefits. A child who is active in the family business and receives a gift of the company stock may be more motivated to help the company grow. - Learning benefits. Gifts can provide a training time during which a donor can help a child manage assets. SIX REASONS TO PLAN YOUR ESTATE Estate planning is an easy thing to put off. Maybe you think it's too early; maybe you think your estate is too small. Here are six good reasons why you should plan your estate now:
WILLS AREN'T ONLY FOR THE RICH If you think wills are only for the rich, you're wrong. A will is an essential part of any estate plan. It is the primary document for transferring your wealth upon your death. If you die in testate (without a will), state law controls the disposition of your property. In fact, even if you don't have a will you still have one. The State will provide one for you when you die. Without a will, settling most estates is more troublesome -- and more costly. We can't cover all the critical elements of an effective will. But here are three major provisions your will should include: Guardian for your children - The will should name a guardian for your minor children in case both you and your spouse die. Selecting a guardian to care for your children deserves a lot of thought. Name someone whose ideas on raising children are similar to yours. Also, be sure the person you select is willing to accept the responsibility. Creation of trusts - All a will can do is direct the disposition of your estate. To accomplish longer-term goals, such as funding a child's education or providing for an elderly parent, you must include instructions for the creation of trusts. Throughout this booklet, we will show how trusts can be used to achieve various objectives. One important aspect to consider in any trust, however, is selecting your trustee. A good trustee shares many of the characteristics we discuss in the section "Keys To Selecting an Executor" below. SELECTING AN EXECUTOR AND TRUSTEES Naming an executor - Your executor is your personal representative after your death and has several major responsibilities including: - Administering the estate and distributing the assets to your beneficiaries. - Making certain tax decisions. - Paying any debts or expenses of your estate. - Ensuring that all life insurance and retirement plan benefits are received. - Filing the necessary tax returns and paying the appropriate federal and state taxes. Individuals are often torn between choosing an individual as their executor and naming a corporate executor, such as a bank. Many people name both an individual and a corporation as co-executors. The advantages of corporate and individual executors are discussed below.
Whatever your choice, remember the following when making your decision: 1. Make sure your executor is willing to serve, and consider paying a reasonable fee for your executor's services. The job isn't easy and not everyone will want or accept the responsibility. 2. In your will, provide for an alternate executor in case your primary executor is unable or unwilling to perform. 3. Make sure your executor does not have a conflict of interest. Example: Think twice about choosing an individual who owns part of your business. A co-owner's personal goals regarding the business may be different from those of your family. SOME ESTATE PLANNING DO'S and DON'TS These suggestions, if followed, can add to your peace of mind about estate planning matters: 1. Write a post-mortem letter of instructions to your spouse and beneficiaries. The letter should (1) specify your funeral wishes, (2) list all of your financial accounts and (3) let heirs know where your will, tax returns and other key documents are located. It will help ensure that your estate’s assets won’t be wasted on taxes and administrative costs that could have been avoided. 2. Create a durable power of attorney. This way, if you or your spouse becomes incapacitated, the person appointed will be able to make financial decisions on your behalf. It’s also a good idea to have (1) a living will, to detail your wishes concerning life-prolonging medical procedures, and (2) a health-care power of attorney, naming somebody to make medical decisions if you are incapacitated. 3. Consider putting any vacation property in another state in a revocable living trust, so that your estate won't end up going through probate in two different states. (Check with your attorney to make sure this is a good idea under the law of your state.) 4. If you have a large estate, give away money to your heirs now. You can give $11,000 per year ($22,000 per married couple), to each donee (with no limit on the number of donees) without incurring gift tax liability.
ESTATE PLANNING FOR SIMULTANEOUS DEATHS Two air crashes in 1999 vividly illustrate that death can come
suddenly and simultaneously to a husband and wife. John Kennedy, Jr., and his
wife Carolyn died together in their small plane in the summer. Then in the
fall, 217 people, including couples, died in the EgyptAir Flight 990 off the
northeast coast of the United States. Simultaneous deaths of husbands and wives are neither rare
nor unique to airline crashes. Couples die together in highway crashes every
year, for example. Whatever the circumstances of these tragic deaths, they can
present serious estate tax problems unless precautions have been taken. Most couples hold their property in joint tenancy. When one
spouse dies, the estate generally passes to the surviving spouse free of estate
taxes. Each spouse is usually named as beneficiary of the other’s retirement
accounts, individual retirement account and life insurance policies, so these
will bypass probate. The need for more advanced estate planning techniques,
such the use of various trusts, might be appropriate for couples facing
potential estate taxes, or where there has been a remarriage, but the joint
tenancy arrangement works fine for many couples. However, the joint tenancy approach falls apart if the
couple dies at the same time, or under circumstances where it can’t be
determined who died first. The problem is that most states, following what’s
called the Uniform Simultaneous Death Act, treat each spouse as having survived
the other spouse. In the case of life insurance, for example, it’s presumed the
insured outlives the beneficiary, and the money goes to the secondary or
contingent beneficiary. Deaths may be treated as simultaneous under the law
even when one spouse dies within five days after the other one if both died due
to a common accident. And some states have modified that act for people
surviving as much as 120 days. The result of this law is that the jointly held property of
each spouse cannot pass to the other spouse because the other spouse is
presumed to have died before the other spouse. Got that? It’s like two people
trying to go through a door where each insists the other one goes first, and
neither one ends up going through. Consequently, the jointly held property of each spouse, including insurance proceeds and retirement accounts, goes into separate probate. This is a nuisance for their heirs and increases administrative expenses. For couples with enough assets to face estate taxes, however, it can be very expensive. Fortunately, couples can avoid this problem by planning
ahead. Start with the will (Carolyn Kennedy didn’t have one). Attorneys can
insert a clause that states who will be considered the survivor in the event of
simultaneous deaths. This can reduce administrative expenses and probate
hassles since the estate of the spouse deemed to have died first passes to the
“surviving” spouse with the marital deduction. Then, of course, the estate of
the second spouse must be settled. This also can help where there are estate tax issues. Take
the situation where one spouse has a personal estate worth $200,000, while the
estate of other spouse is worth $1.75 million. If the wealthier spouse dies
first, the estate plan might be set up so that $1,000,000 is passed on to the
“poorer” spouse under the marital deduction. The remaining $750,000 is passed
on to the children, perhaps through a trust. However, without proper language
written into the will regarding simultaneous deaths, this strategy could fail.
If the spouses die at the same time, each estate would be treated separately
and there would be no marital transfer. Thus, the portion of the $1.75 million
estate above the $1,000,000 estate tax exemption for the year 2003—$750,000—would
be taxed. Meanwhile, the estate of the poorer spouse is able to make
use of only $200,000 of the $1,000,000 exemption, essentially “wasting” part
of the exemption. Probate problems also can be minimized by naming a contingent beneficiary for such assets as life insurance policies, retirement accounts and individual retirement accounts. A contingent beneficiary is a beneficiary who receives the proceeds in the event the primary beneficiary, who would be your spouse, dies before you do—exactly what happens in simultaneous deaths. (Updated— Financial Planning Association) LIVING TRUSTS – THE WAY TO AVOID PROBATE Probate is the process of proving and administering a will under the Jurisdiction of a court. It is also a time-consuming - and potentially expensive process. For these reasons, avoiding probate usually should be one of the main goals of your estate plan. Here's how you can do it. A self-declaration, or living, trust is a legal document that resembles a will. It contains an individual's instructions for the management of the individual's assets in the event of disability -- and the directions for the distribution of the individual's assets upon death. After you create the trust, you change the title on your assets from your name to the name of the trust. During your lifetime, assuming no disability, you control the assets in this trust. The trust doesn't have to file a tax return or pay taxes. You act as your own trustee, thus eliminating any professional fees. You can do anything with your assets that you want -- you retain the same control you had before the trust was established. Probate can be time-consuming...slow...costly. But the trust can pay off when you die. Assets in the living trust do not go though probate. Therefore, if all of your assets are in a living trust when you die, you completely avoid probate. Your assets are disposed of more quickly and often at less administrative cost. Also, your assets are not exposed to public record, as they are if they go through probate. Besides keeping your affairs private, it makes it more difficult for anyone to challenge the disposition of your estate. Finally, a living trust provides a perfect vehicle for managing your assets in the event of your disability. A will carries no such benefit -- wills function only in the event of death. Remember one thing: Only those assets titled in the trust's name avoid probate. Upon the creation of the trust, make sure that you change the title of your assets. Even if you place your assets in a living trust, it's a good idea to draft a "pour over" will. This document gives instructions for the disposition of assets not put in the trust. The decedent provides for a portion of his or her estate to be placed in an irrevocable bypass trust, equal to the applicable exclusion amount for the year of death. The exclusion amount is a personal exemptions each person has from death (estate) taxes. Currently, the "Unified Credit" for 2001 is $675,000. The remainder of the estate is given outright to the surviving spouse or placed in a revocable martial (or survivor's) trust. Income from the bypass trust can be paid to the spouse during his or her lifetime. At the surviving spouse's death, the children receive the property from both trusts, but the property in the bypass trust is not included in the surviving spouse's gross estate for death tax purposes. With this common structure, a married couple can pass on to their children assets up to $1,350,000 estate tax free instead of $1,079,250.
Education Funding I Tax Tips I Estates I Mortgages
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Estate Plan
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