When asked about estate planning, do you respond with one of the following?:
For many people, even those who already went through the process, estate planning is like stepping into a foreign world. Estate planning professionals talk about concepts such as living trusts, life insurance trusts, powers of attorney, gifting programs, unified credit, etc. With such an array of alternatives, is it any wonder many people are reluctant to explore the estate planning process?
Estate planning does not have to be complicated to be effective. The most important aspect of estate planning is knowing the right questions to ask. However, if you are unsure which questions to ask, how will you ever be able to determine what estate planning products will work for you? Even as you read this article, you should be able to answer some basic questions:
If you cannot answer these questions, you
are not alone. Too often, this critical planning happens too
late or not at all. But this also emphasizes the importance of
discussing these issues with your trusted professionals. Please
call if you would like to take action now to get your estate plan
in order.
We have all heard the saying that the two things that are unavoidable are death and taxes. No one likes to consider death or the loss of a spouse. However, since we know these events are inevitable, it makes sense to begin planning for the unthinkable. Following are a few files you can make to help ensure your loved ones will have as few problems to deal with as possible:
Make sure your loved ones are aware of where to locate these files. By gathering and maintaining this information now, you will make a difficult time a little easier. Those who are left handling your personal business will be grateful.
The estate planning process is important to your overall financial well-being. Because of this, I offer a personal estate review where I can provide advice regarding the transfer of assets during your lifetime and after death. The process involves a review of your estate planning concerns and desires as well as a presentation on the following topics:
Please call if you would like to discuss
your estate concerns and to find out how I can help you solve
them.
We provide a complimentary estate plan review, where we help you review the transfer of assets during your lifetime and after death. The process involves going over your estate planning concerns and desires, and developing strategies for:
During this process, the following questions will be addressed:
Please call to discuss your estate concerns.
Your estate isn't that large, so you don't need to plan your estate, right? You couldn't be more wrong. Estate planning includes much more than just reducing estate taxes. These common estate planning mistakes can be financially costly:
It's important to know what is going to
happen to your assets when you die or become disabled. If you
would like to discuss how you can avoid these types of mistakes,
please call.
Many people, including financial advisors, seem to be of the opinion that an estate plan is no longer necessary. After all, an estate can pass between spouses with no federal taxes. If the estate is less than $2 million in 2006, the estate tax exemption amount allows it to pass to other heirs free of the federal estate tax.
However, there are still issues to be addressed. Will the surviving spouse have enough liquid cash to support his/her desired lifestyle? Are there enough assets to put the children through college? Can the business survive without the deceased? Who will be the children's guardian if both parents are deceased? If your child predeceases you and your spouse, do you want your son-in-law or daughter-in-law to administer your grandchildren's estates?
Please call for an appointment if you would like to discuss your estate plan.
Estate planning - the process of preserving your assets and transferring them to your family, friends, or charities - is a critical area of financial planning. If any of the following applies to you, a thorough review of your estate plan may be needed.
With so much at stake, we should immediately discuss your estate planning objectives and develop a plan for effectively transferring your assets to your heirs.
Over the past year, a number of other advisors, particularly attorneys and CPAs, have expressed frustration to me in not having their clients follow through with estate and tax planning recommendations. It seems many clients will look at one of the advisors as a key leader and will often say something like, "I need to talk to my attorney about that," or "I need to talk to my insurance advisor about that." Clients often view advisors as isolated from each other, with each dealing in a very specific area - the result of this approach is a very narrow financial plan.
It has been my experience that the process works best when each advisor is given a complete picture. It is difficult for the attorney, accountant, or insurance and investment advisors to give a complete recommendation if they do not have a total picture of all assets, liabilities, objectives, unique family situations, and concerns.
The best results can be accomplished when
all advisors are included in a full discussion, periodically receive
copies of correspondence, and meet with the client together.
Discussing your personal finances with your children, appointed trustee, or named executor might not be a conversation that you enjoy. However, there are reasons to share at least a small amount of information with the individual(s) whom you appointed to make financial and health care decisions for you if you are unable to do so yourself.
Some of the information you may want to discuss includes:
It will be very stressful for loved ones if you become ill. The more guidance and preparations you make, the better it will be for the family, and the more likely the decisions made on your behalf will be a reflection of your wishes. The best case scenario is to discuss your plans with all of your children so there are no surprises or secrets. Not only will it give you the best chance of fulfilling your wishes, but it hopefully will eliminate conflict among family members.
If you would like help planning for your
future, please call.
Developing an effective estate planning
strategy can help conserve your accumulated wealth for your heirs.
Many options are available for distributing your assets, such
as creating a bequest for a favorite charity or funding a child's
or grandchild's college education. The estate planning process
even includes consideration of methods for helping you reduce
estate taxes and setting aside funds for preserving assets during
estate settlement.
However, many people feel so overwhelmed by the complexity of planning their estate that they avoid doing so. Please call if you would like me to introduce you to strategies that can help you work towards achieving your desired estate planning results. I can also work with your estate planning attorney or advisor.
Relatively few people are conscious of the need for proper distribution of their estate. This is evident by many who leave the distribution to the law, which does not take into account individual circumstances.
The owner of every estate faces certain problems: accumulation of an adequate estate for family income, management of investments and business interests, conservation of estate principal through good management, and distribution of the estate to the best advantage of heirs.
In seeking help, one often turns to a professional such as an attorney, trust officer, accountant, or CPA. To derive the most efficient process, those professional suggestions must be correlated and coordinated by one professional. Consider using a financial advisor who has knowledge in all these various fields, can work with the other professionals, and can coordinate their suggestions.
By providing options, advice, and individualized strategies, a financial advisor can show clients ways to help you reduce taxes, maximize return potential, preserve assets and earnings, and create new capital for future generations. The primary role of a financial advisor is to fully understand each client's financial situation and to provide them with appropriate information, advice, and solutions. If you would like to set up a time to discuss your estate, please call.
Parents of a child with special medical needs face many challenges. One of the most significant is providing financial support for ongoing care after the parents' death.
One concept to consider is a trust. Whatever type of trust is chosen, it should be carefully drafted so it does not interfere with government aid. If the disabled child's interest in a trust is considered an available resource, it may put him or her over the minimum asset and/or income requirements. Avoid jeopardizing the child's basic necessities - such as food, shelter, or clothing - because those needs are generally covered through government programs. The trust fund should be used to supplement those programs.
A trust can also provide that if eligibility for assistance is cut off because the trust is considered an available resource, the trust will terminate. The assets would then be distributed to other beneficiaries. By doing this, the disabled child would have no resources and should qualify for benefits.
Parents of disabled children are naturally concerned over who will provide the "extras" not covered by government programs. The trust could be limited to being used only for extra expenses not covered by government aid, such as recreation.
The trustee could be instructed to care for the disabled child first before making payments to other beneficiaries, or separate trusts can be set up for each beneficiary. By doing this, the trustee pays for needed expenses out of the disabled child's trust, instead of reducing the shares of other beneficiaries.
There are no easy answers
to the problem of how best to provide for a disabled child. Please
call if you would like more information.
The federal lifetime gift tax exclusion was raised to $1,000,000 in 2002, but is not scheduled to increase in the future. If you'd like to pass on more than $1,000,000 to your heirs before your death, but don't want to pay federal gift taxes, a grantor retained annuity trusts (GRATs) might be in order.
With a GRAT, you transfer an asset to the trust, retaining an annuity interest for a specified term. During that period, the trust pays you a specified amount every year. When the trust terminates, the property goes to the named beneficiary. The gift is valued based on the present value of the remainder interest, which is the property's value less the retained annuity interest's value. Any appreciation in the asset after transfer to the trust escapes gift and estate taxes. However, if you die before the trust ends, the trust property will be included in your taxable estate.
Recent declines in interest rates have made GRATs a more valuable estate planning strategy for a couple of reasons. When you initially place the asset in the trust, the lower interest rates will result in a lower value for your retained interest, thus reducing the gift's value. When your annuity payments are calculated, lower interest rates will result in a lower required annuity, leaving more assets in the trust for your beneficiaries. The interest rate that must be used for these calculations is 120% of the mid-term applicable federal rate. As of July 2002, that rate was 5.53% (Source: Federal Taxes Weekly Alert, June 27, 2002).
Assets that are typically good candidates for a GRAT are those whose value is expected to increase significantly during the trust's term. GRATs are sophisticated estate planning tools that may only be appropriate in certain situations. Please call if you'd like to discuss GRATs in more detail.
The Economic Growth and Tax Relief Reconciliation Act of 2001 contains sunset language stating that its provisions will not apply after December 31, 2010. Without further Congressional action, the 2001 tax will be reinstated beginning 2011.
The federal lifetime gift tax exclusion was increased to $1,000,000 in 2002, but is not scheduled to increase in the future. If you're looking for a way to leverage that exclusion while leaving your home or vacation home to heirs, a qualified personal residence trust (QPRT) might be in order.
With a QPRT, you place your home or vacation home in a trust, retaining the right to live in the home for a specified number of years. During that time, you retain ownership and use of the property. When the trust terminates, ownership passes to your beneficiaries. The gift's value is determined by calculating the home's present value discounted over the trust's term using an interest rate specified by the Treasury Department. The higher the interest rate and the longer the trust's term, the lower the value assigned to the gift. Recent interest rate declines generally mean that the gift's value will be higher than it would have been even a few months ago. However, it's not uncommon for a home to be valued at less than half its value if the trust's term is 10 years or longer.
The gift's value is determined on the date the house is placed in trust. Thus, any future appreciation is removed from your estate. Depending on the gift's value, you may have to pay gift taxes or use a portion of your lifetime gift tax exclusion. If the gift's value would result in the payment of gift taxes, you may want to reconsider this strategy. In those situations, you may want your heirs to receive the home after your death, as long as no estate taxes will be due. QPRTs are irrevocable. If you change your mind later or your family situation changes, you can't undo the trust.
You must outlive the trust's term or the home will be included in your estate at its current fair market value.
You can make provisions for the sale of the home during the trust's term, as long as the proceeds are used to purchase another home within two years.
Your heirs will own the property when the trust terminates, so they should have the financial resources to maintain the property. If you continue living in the home after the trust terminates, you must pay a fair market rental to your heirs. While that may be a discomforting thought, it is another method of distributing income to heirs without paying gift or estate taxes.
Your heirs' basis in the home remains the same as your basis plus any gift taxes paid. Thus, if they sell the home with a large capital gain, they may have to pay capital gains taxes. Or your heirs could make the home their primary residence and live in it for at least two of five years before selling. They may then exclude $500,000 of gain with a married filing jointly status or $250,000 of gain with a single filing status.
A QPRT can provide a means to remove a home from your estate at a discounted value. Please call if you'd like to discuss QPRTs in more detail.
The Economic Growth and
Tax Relief Reconciliation Act of 2001 contains sunset language
stating that its provisions will not apply after December 31,
2010. Without further Congressional action, the 2001 tax will
be reinstated beginning 2011.
Many people believe estate planning strategies are something you don't really begin to seriously consider until your retirement days. After all, once you retire you will have all kinds of time to take care of your financial affairs. Unfortunately, this type of thinking delays a very important financial task, and may leave your family in dire financial and legal straits.
If you haven't considered
estate planning strategies yet, now is the time. There are several
things you can do to help assure your estate doesn't become a
burden to those you leave behind. Please give me a call and I
can help get you started. Even if you feel you have your situation
well in hand, maybe a friend or relative can use my help.
Parents generally want to be fair to all their children. But does that mean you should divide your estate equally among your children? There are some situations where it may make sense to distribute an estate unequally:
While parents want to be fair, that doesn't always mean that children should receive equal distributions. However, if you decide to make unequal distributions, it is generally a good idea to explain why. That way, you will hopefully prevent hurt feelings or disagreements among siblings.
The duties of an executor (sometimes called a personal representative) are complex and time consuming. Before deciding who to name as your executor, make sure you understand the basic responsibilities:
Your executor will have to make many financial decisions, including tax elections and investment choices, that will have a significant impact on your estate's value. Therefore, carefully evaluate the person's qualifications before selecting him/her as an executor.
While people often select family or friends as executors, you may want to consider naming a bank trust department or other professional if you have a large or complex estate. Another option is to select co-executors, one a professional and the other a family member or friend.
Many people believe, for various reasons, that they do not need a will. But how valid are the more common reasons for not preparing a will?
Your estate is too small. Some believe that if their estate won't be subject to estate taxes (in 2001, your taxable estate must be over $675,000 before estate taxes would be owed), there is no need for a will. However, a will's purpose is not to save estate taxes, but to:
All your property is jointly owned. When one owner dies, jointly-owned property passes directly to the joint owner, regardless of provisions in a will. Also, the unlimited marital deduction allows you to leave any amount of your estate to your spouse without paying estate taxes. Thus, many married couples use joint property ownership as their sole estate planning technique. However, if your joint taxable estate exceeds the lifetime gift and estate tax exclusion ($675,000 in 2001), your estate may save estate taxes by distributing some assets to other heirs.
A living trust will distribute your assets. Only assets that have actually been conveyed to the living trust are controlled by the trust document. Typically, a pour over will is also needed, which places in the trust any assets not held by the trust at your death.
You expect your estate to grow significantly in the future. Some feel it is premature to plan their estate while it is being built. However, a will can be changed. In fact, you should periodically review your entire estate plan to see if changes in your personal situation, preferences, or tax laws require changes to your plan.
If you'd like to discuss
the role of a will in your estate planning strategy, please call.
If you're like most people, you've probably delegated estate planning to the realm of things to be done "someday." Most people dislike confronting their own mortality, but proper estate planning accomplishes two major objectives - it ensures that your wealth is distributed according to your wishes and it can reduce the payment of federal and state estate taxes.
By formally planning your estate, you will review many different areas, such as:
Estate planning is a complex subject requiring the advice of your legal expert to ensure that appropriate strategies are used. Please feel free to call today so we can review your estate planning needs.