Questions & Answers
Does everyone need a will?
When should I review my existing Will?
What is the importance of estate planning?
What does ‘probate’ mean?
What types of property is involved in the probate process?
What is asset protection?
What is a “trust”?
What is a living trust?
Can a living trust reduce estate taxes?
What is estate tax?
Can I avoid estate taxes by just giving away all my property
before I die?
Does everyone need a
will?
Yes. Some people think a will is unnecessary since state laws
will divide and distribute your assets after your death. Others
think that since they do not have large estates, they don’t need
wills. But here is what will happen if you die without one: State
laws will determine who gets your property. This is called
“intestate succession”. Your property will first be divided among
your spouse and children, or to your other closest relatives. If you
are not married and have no children, then your property will be
distributed to your next of kin. If the courts cannot find your next
of kin, the property goes to the state.
If you do have children and die without a will, a court will
determine who will care for your young children and their property
if the other parent is unavailable or unfit.
When should I review my existing
will?
Your will may be changed as often as you wish. If the change you
desire is relatively simple, an amendment to the document, known as
a codicil, is executed with the aid of an attorney. If you decide to
write a new will altogether, the new document should specifically
revoke all prior wills. Something to remember: Revoking a will
automatically revokes its codicils, but revoking a codicil does not
necessarily revoke a will.
Also, you should review your will when any of the following events
occur:
- Marital status changes
- A child is born
- You move to another state
- There is a significant change in the value or character of your
assets
- There is a change in intended beneficiaries
- A beneficiary dies
- A guardian, trustee, or personal representative named in your will
dies
- There is a change in tax laws affecting federal estate tax
deductions and calculations
- Once every five years
If you believe a change to your will is necessary you should consult
an attorney who is familiar with the probate code of the state in
which you live. He or she will know how best to comply with various
state requirements.
What is the importance of
estate planning?
Estate planning is the process of putting your affairs in order,
with the goal of maximizing the benefits your assets can provide to
you during your life, and to those you desire to benefit from it
after your death. There are three objectives with estate planning:
- To make sure that after your death, your assets pass to the people
you designate, in a manner that will give them the maximum benefits
- To reduce or eliminate the tax burden on your estate
- To make sure your assets are passed to your beneficiaries without
the necessity of probate
Isn’t
estate planning mostly about reducing taxes?
No. Even for those with estates large enough to be subject to
estate tax, minimization of tax should be coordinated to fit with
your other non-tax goals.
What does ‘probate’ mean?
"Probate" is the administration of the estate of a decedent
through court proceedings. It is the method by which the rights of
all parties are determined relative to the decedent's estate. These
parties would include heirs (those entitled to inherit by state law
in situations where no will exists or the will does not cover all
assets governed by the Probate Court), will beneficiaries,
creditors, and taxing authorities. The proceeding effectively passes
title to assets of a decedent to those entitled to them.
What types of property is involved in the
probate process?
Any and all property titled in the name of the person who died is
subject to the probate process. Probate is the process of orderly
transferring title to these assets from the name of the decedent
into the name of the beneficiaries, and providing creditors of the
decedent an opportunity to assert their claims against the estate in
order to get paid. Titled property such as automobiles and real
estate pass through probate, as do non-titled assets such as
furniture and jewelry.
What is
asset protection?
Asset protection is a preventative measure designed to protect a
client’s assets from creditors. It is a form of risk management
planning that involves a legal and ethical review of a client’s
financial holdings, then the restructuring of those holdings to take
advantage of various techniques and legal exemptions that seek to
place those assets beyond the reach of potential creditors. In
addition to insulating assets from creditor attack, asset protection
planning can allow you to negotiate a favorable settlement with
creditors from a position of strength.
What is a “trust”?
A trust is a relationship in which a person, called a trustor,
transfers something of value, called an asset, to another person,
called a trustee. The trustee then manages and controls this asset
for the benefit of a third person, called a beneficiary. An asset is
any kind of property.
What is a
living trust?
A trust is an arrangement under which one person, called a
trustee, holds legal title to property for another person, called a
beneficiary. You can be the trustee of your own living trust,
keeping full control over all property held in trust. A "living
trust" is simply a trust you create while you're alive, rather than
one that is created at your death under the terms of your will.
Different kinds of living trusts can help you avoid probate, reduce
estate taxes, or set up long-term property management.
Can a living trust reduce estate taxes?
A simple probate-avoidance living trust has no effect on taxes. More
complicated living trusts, however, can greatly reduce the federal
estate tax bill for people who own a lot of valuable assets.
One tax-saving living trust is designed primarily for married
couples with children. It's commonly called an AB trust, though it
goes by many other names, including "credit shelter trust,"
"exemption trust," "marital life estate trust," and "marital bypass
trust." Each spouse leaves property, in trust, to the other for
life, and then to the children. This type of trust can save up to
hundreds of thousands of dollars in estate taxes, money that will be
passed on to the couple's final inheritors.
What is estate tax?
Estate tax is a tax on your right to transfer property at your
death. It consists of an accounting of everything you own or have
certain interests in at the date of death. The fair market value of
these items is used, not necessarily what you paid for them or what
their values were when you acquired them. The total of all of these
items is your "gross estate." Property that may be included in this
may consist of cash and securities, real estate, insurance, trusts,
annuities, business interests and other assets.
Once you have accounted for the gross estate, certain deductions
(and in special circumstances, reductions to value) are allowed in
arriving at your "taxable estate." These deductions may include
mortgages and other debts, estate administration expenses, property
that passes to surviving spouses and qualified charities. The value
of some operating business interests or farms may be reduced for
estates that qualify.
Can I avoid estate taxes by just giving away all my property
before I die?
No. If you give away more than $11,000 per year to any one person or
noncharitable institution, you are assessed federal "gift tax,"
which applies at the same rate as the estate tax. Making gifts of
$11,000 or less, however, can yield substantial estate tax savings
if you keep at it for several years. Some other kinds of gifts are
exempt from the gift/estate tax as well. You can give an unlimited
amount of property to your spouse, unless your spouse is not a U.S.
citizen, in which case you can give away up to $114,000 per year
free of gift tax. Any property given to a tax-exempt charity avoids
federal gift taxes. And money spent directly for someone's medical
bills or school tuition is exempt as well.
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