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Personalize your estate planning vision
As you reflect on your life's many accomplishments and successes, ask yourself if you have effectively planned for passing along the legacy of your estate. Will you find peace of mind in knowing that you have made the decision to take control of your estate? You work hard to accumulate sufficient financial resources to support your family today and leave a legacy for tomorrow. Through careful planning, you can minimize estate taxes, make sure your assets go where you choose, protect your family's interests and support those causes that are important to you.
Putting together an estate plan is unquestionably a laudable goal, and a very prudent one. But how do you get started, and what constitutes a "good" estate plan? Here are some steps that you may wish to take to ensure that your estate plan is comprehensive and effective. Some of these items may not be applicable to your particular situation, but many will.
Estimate your estate tax liability. Virtually all of your financial assets - investments, real estate, insurance policies, etc. - are included in the value of your estate for estate tax purposes. If your estate was worth more than $675,000 in 2001, you will be subject to estate taxes, the amount of which will vary by state.
Draft a living trust and "pour-over" will. A properly designed living trust offers many advantages such as privacy and the avoidance of probate, the timeconsuming and often expensive legal process of distributing assets. A pour-over will captures assets that may not have been assigned to your living trust during your lifetime.
Draft financial and health care powers of attorney. When you establish a health care power of attorney, you authorize your designated representative to make health care decisions for you, should you become incapacitated. Likewise, a financial power of attorney provides legal authority to someone to handle your financial transactions in the event of your incapacity.
Create credit shelter trust provisions in your live ing trust. A credit shelter trust, also known as a family trust or bypass trust, is the most commonly used method of avoiding estate taxes. When you establish this trust, your assets will bypass your surviving spouse's taxable estate, effectively protecting up to $1,350,000 in assets from estate taxes.
Create separate ownership of assets over $675,000. To properly fund the credit shelter trust, each spouse should own up to $675,000 of assets in their own name.
Re-title assets in the name of your living trust. By removing assets from your taxable estate and re-tiding them in the name of your living trust, you can gain all the advantages offered by this type of trust.
Take advantage of the $10,000 annual exclusion for gifts. Each year, you can give $10,000 to as many people as you choose, free of gift taxes. These gifts also reduce the size of your taxable estate.
Remove life insurance from your estate. Any life insurance that you own will be included in your taxable estate, regardless of the named beneficiary. By putting life insurance into an irrevocable trust, you can avoid estate taxes on insurance death proceeds.
Consider long-term care insurance. To preserve your financial independence and to prevent your family from having to assume the substantial costs of longterm care, such as that provided by a nursing home, you may want to consider purchasing long-term care insurance.
Make a business succession plan. If you own a small business, creating a business succession plan may help you protect your family's financial and personal interests.
Review beneficiary designations on IRAs, annuities and life insurance. Make sure your beneficiary designations are up to date, accommodating all changes in your family situation, such as the birth of a new child, marriage or divorce.
Review your estate plan every five years, at a minimum. As your financial and family situations change over time, you will need to monitor and adjust your estate plan. Likewise, tax or estate law changes could affect your plan. Ask your financial consultant for help in reviewing your plan.
The vision you have for your estate is not only unique, it is personal and confidential. With the development of an estate plan and trusts, no matter what the components, you will set into motion a carefully crafted set of legal and financial decisions that will enrich you and your beneficiaries for generations to come.
Your plan may be the most significant thing you can do to ensure that your financial legacy will live on, with minimal tax encumbrances, free of delays or a lengthy probate process.
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