Financial Planning Solutions: Estate Planning

Overview | Retirement Planning | ESTATE PLANNING | Mutual Fund Investing | Tax-Deferred Savings

Many people assume only the very wealthy need estate planning. Certainly those with estates in excess of the lifetime gift and estate tax exclusion ($1,000,000 currently) need to take active steps to reduce the impact of estate taxes, but there are other reasons to consider estate planning. Parents with minor children should name guardians and provide for their children's support. Divorced parents need to protect children from prior marriages. Property owners and business owners need to protect their assets from taxes and court fees. These are only a few reasons to consider estate planning.

Here are a few other things to consider when planning your estate….

Leave written instructions for heirs. This gives you an opportunity to provide heirs with important financial and personal information and to clarify requests you have made in other legal documents.

Don't rely on joint ownership of property as your only form of estate planning. Although joint ownership can simplify estate planning, it may not be the most appropriate or cost-effective way to distribute assets.

Name Executors, Trustees, and Guardians carefully. An executor (your personal representative) administers your estate through probate court, locates and values all assets, pays obligations of your estate, and distributes your estate to your heirs. A trustee manages your trust and distributes income and principal. A guardian takes physical care of your minor children and handles their finances. All three roles significantly impact your estate, so choose these individuals carefully.

Update beneficiaries. Beneficiaries can be named for many assets and should be reviewed after major changes, such as marriage, divorce, death, or the birth of a child.

Carefully consider whether you should leave your entire estate to your spouse. By using this strategy, you forfeit the use of your lifetime gift and estate tax exclusion. This can increase the ultimate amount of estate tax heirs will pay on large estates.

Set up a gifting program during your life. Each year you can gift $10,000 ($20,000 for married couples) to any individual gift tax free. Over a number of years, an annual gifting program can remove a substantial amount of taxable assets from your estate. You can also use your lifetime gift and estate tax unified credit during your life.

Skip a generation if your children already have sizable estates. Leaving assets to children with sizable estates means that the assets will be taxed again when your children leave them to your grandchildren. Transferring directly to your grandchildren may be a better strategy, although there are limits before triggering an additional estate tax called the generation-skipping transfer tax.

Understand when a revocable living trust is appropriate. Living trusts can provide substantial estate planning benefits, such as removing assets from probate and preserving the use of the lifetime estate and gift tax exclusion. However, these trusts do not reduce estate taxes.

Minimize life insurance proceeds from estate taxes if your total estate, including those proceeds, exceeds the lifetime gift and estate tax exclusion. Although the proceeds will generally be free from income taxes, estate taxes will be assessed unless you set up an irrevocable trust... or... make your heirs the owners of the policies.

Realize that a wide variety of trusts exist to help meet specific estate planning needs. Trusts can be established to help meet a variety of objectives: to reduce estate taxes, to control asset distribution, to make gifts to charities, to provide for the possible incapacity of the creator, to help protect heirs from themselves or others, to avoid probate, to allow a professional to manage assets, or to ensure that provisions are made for minors. A quality estate planning attorney should be consulted. We know several to refer.

Make provisions for the payment of estate taxes through the use of life insurance. Many large estates are cash poor and heirs have difficulty paying estate taxes, often forcing them to sell assets below market value. Unfortunately, the best assets are the ones to go first at the deepest discount. There are special forms of life insurance designed to pay the estate taxes without sacrificing valuable assets.

Taking time now to plan your estate will help ensure that your assets are properly distributed with minimal estate tax cost. Please visit our Request Information section of our web site if you would like more information.

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