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Estate Planning

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The total property an individual owns is called an estate. Your estate is made up of real property, or land, and personal property, which is all of your physical and financial assets (such as money, life insurance, cars and jewelry — even your grandmother's engagement ring).

Upon death, your estate will be distributed in one of two ways. If you fail to plan ahead, the state will determine how to distribute your assets. However, with sound estate planning, you can ensure that your estate is distributed according to your wishes. It is never too soon to start planning. If you have yet to make plans for your estate, or if it has been some time since you made your original plans, you should seriously consider contacting a family law attorney.

Why Do You Need Estate Planning?

Estate planning allows you to pass to your property to whomever you want with as few legal obstacles as possible. Importantly, estate planning seeks to maximize the value of your property by reducing or eliminating the impact of inheritance tax laws. Estate planning is also an opportunity to make arrangements for your children.

What is Probate?

Whether you have a will or die intestate, your estate will be subject to state probate laws. Probate is the court supervised process to legally transfer ownership of a decedent's assets to the beneficiaries or heirs. The court must first confirm the validity of your will, if you have one, and name the executor or representative. (In most cases, the executor/representative will have been identified by you in your will.) Next, the executor will administer the duties of probating the estate, which include:

  • Overseeing the collection of your assets
  • Settling the debts of the estate
  • Paying the taxes and administrative fees
  • Distributing the remaining assets to the heirs

Do I Need To Avoid Probate?

Not necessarily. Many people think they should avoid probate because of privacy concerns, time and expenses associated with the process. Probate procedures are a matter of public record. However, most states have streamlined their probate processes considerably. In fact, the biggest delays today are attributable to the filing requirements of inheritance tax laws, which impact living trusts and probated estates just the same.

The determining factor is usually cost. Depending on your circumstances and the laws of the state, the costs associated with probate may be similar to the costs associated with nonprobate property. A qualified family law attorney can help you determine the estate plan that is best for you.

Probate courts can only oversee the distribution of real property within their state. If the decedent has real property in multiple states, probate must be initiated in each state.

In many states, probate is a straightforward and inexpensive process. However, in states where probate might be a longer and more expensive proposition, a family law lawyer can help design an estate plan that bypasses it altogether.

Wills, Trusts & Other Property Management Tools

Wills. A will is a legally enforceable document containing instructions for the distribution of property owned by you at the time of your death. Distribution of nonprobate property (property that passes to someone else upon your death — e.g., a life insurance policy with a beneficiary other than your estate) is not managed by your will unless it is payable to your estate. The most common types of wills are:

  • Simple will: an outright distribution of your assets to named beneficiaries.
  • Testamentary trust will: A testamentary trust will creates trusts upon your death. A trust is when one person (trustee) holds another person's property (grantor) for the benefit of another person (beneficiary).
  • Pour-over will: Probate assets "pour over" to a trust you established before your death.

Some of the other things a will can do include:

  • Designating a guardian for your minor children if you survived the other parent
  • Designating an executor to make sure the terms of your will are carried out
  • Designating a successor custodian if you are acting as a custodian for the assets of a child or grandchild

Trusts. Trusts allow you to control the distribution of property to your heirs. Trusts can provide for the management of an estate in the event you are incapacitated. Additionally, you may be able to reduce, avoid or postpone federal estate, gift and income taxes.

Income Taxes and Estate Planning

Income taxes are assessed annually during a person's lifetime. Certain investment vehicles such as IRAs have become more popular in recent years because the monies contributed have the potential to grow tax-free for a sustained period of time.

Significant penalties and taxes may be imposed upon distribution if the rules are not carefully followed. This decreases the value that can be passed to the beneficiary. An attorney can help you understand the rules associated with tax deferred accounts.

Whereas a testamentary trust is created in your will upon your death, a trust created in your lifetime is called an inter vivos or living trust. A living trust is able to "pass outside of probate" because the assets belong to the trust, not the decedent, at the time of death. Trusts can have varying degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. An experienced estate planning attorney can assist you in determining the best way to ensure that your goals and objectives are achieved.

Nonprobate property. In addition to living trusts, the following types of property are not subject to probate; instead they pass directly to the named party upon your death:

  • Life insurance policies and annuities pass directly to the beneficiaries
  • Money from retirement plans (401(k)s, IRAs and Keoghs) pass directly to the beneficiaries
  • Bank, broker and mutual fund accounts and savings bonds set up as pay-on-death accounts
  • Jointly owned property with a "right of survivorship" passes to the other owner(s)


Tax Planning

Good estate planning takes into consideration the often significant consequences of estate and gift taxation, sometimes referred to as inheritance tax laws.

The estate tax, also known as the death tax, is a one-time federal tax on the value of your estate. The Internal Revenue Service values your estate as the sum total of all of your assets, including nonprobate property. Certain deductions are allowed, including funeral expenses and debts paid from your estate, the value of property passed to your spouse, the value of property passed to charities and any death taxes paid to the state. Most importantly, there is a "death tax exemption" currently set at $3.5 million for individuals. Utilizing certain trusts can increase the amount of the exemption, sometimes to the tune of millions.

The gift tax is assessed on the transfers of gifted property. Exemptions from gift tax include a $12,000 annual exclusion for each person to whom you make a gift, gifts to spouses, charitable and political contributions and tuition or medical expenses paid on behalf of someone else.* Larger gifts can be made with limited or no tax consequences with the use of special trusts.

An estate planning attorney can help you learn more about the tax implications to your estate, as well as other issues related to estate planning.

* Internal Revenue Service

Did You Know?

The Economic Growth and Tax Relief Reconciliation Act of 2001 provides for increasing exemptions from estate tax for 10 years. For 2009, the first $3.5 million is exempt from estate tax. Because of a "sunset" provision, the estate tax will be reinstated in 2011 if no further laws go into effect.

Source: Joint Committee on Taxation

Health Care Decisions

A living will allows you to express your wishes for medical treatment in the event you are incapacitated. Alternatively, a health care proxy allows you to appoint a person to make medical decisions for you.