Your estate consists of the assets that you will pass on to your beneficiaries when you pass away. Estate planning means deciding where your assets will go when you die. It takes time, thought, and the knowledgeable assistance of a qualified attorney. Even if you diligently plan your estate on your own, it is easy to make mistakes. Mistakes can result in portions of your estate being unnecessarily taxed and assets going to the wrong beneficiaries.
This line made me realize that the "just one thing" in estate planning, like the movie, is different for each person. The true answer is the quintessential clich, "it depends". The purpose of this article will list some of the most important factors that people should consider. In the end, whatever your "just one thing" is should motivate you to take action and provide "Peace of Mind" for your loved ones. Avoiding Probate - This seems to be the relevant factor cited most frequently, although I disagree that it is the most important reason to plan. Probate in Arizona is not the costly, burdensome procedure that it is in some states like California or New York. Yes, it does cost some money, but in most cases the cost is only a few thousand dollars. The severity of probate depends largely on the make-up of the assets. The more "complicated assets" you have (ie Oil Leases, closely held family businesses, Partnerships, fractional interests in Real Estate, etc.) and the more states in which you own real estate, then you drive up the "Probate Meter" very quickly. If you own real property in more than one state, you will have to have a probate proceeding in each state, which means you will probably need an attorney in each state. But, if your assets are "simple", (a house, a car, some CDs) and primarily located in Arizona, then the "Probate Meter" is very low.
Saving Taxes - People have heard this phrase over and over again in newspaper ads inviting people to public seminars put on by a "national expert" that nobody has ever really heard of. But, how does a Trust really help to save taxes? Under today's tax laws, a common Revocable Trust does not save taxes for most people. First, a Trust doesn't save any income taxes. The Trust is ignored for income tax purposes and all of the income generated by the Trust is taxed to the individual Grantors of the Trust as usual. Also, for a single person, a Trust does not save any estate taxes. But, for a married couple, a Trust can save estate taxes. Most married couples have a Revocable Trust, that splits into an "A" and a "B" trust at the death of the first spouse. The primary reason for this split is that it guarantees that the couple will get two exemptions to apply against the estate tax. One exemption for the "B" trust when the first spouse dies, and then a second exemption against the "A" trust when the surviving spouse passes. Without an A/B trust, it is possible that the exemption of the first spouse could be wasted. But, since the federal estate tax exemption is now set at $5 million, most couples only need one exemption anyway. So, in the end, for probably 95% of married couples, having a trust will not save any estate taxes. Now, this is true as to the Revocable living trust.
Central to estate planning is choosing people to make decisions for you both during incapacity and after your death. These people include trustees, guardians, agents, and beneficiaries. Make sure that you select an agent who knows you and your wishes well. He or she will speak for you when you cannot, so it is vitally important that he or she knows you well. Make sure you and the agent have a clear understanding of his or her role in your estate and that you have clearly communicated your desires.
Restrictions and Incentives for Children - The key question here relates to the timing in which a child should gain unrestricted access, an outright distribution, to the assets after the death of both parents. We would all agree that if a child is a minor, then the assets should be controlled and restricted by an independent trustee for a period of time. What we may disagree on, is the appropriate age in which all restrictions and the independent trustee should be removed. Some clients say age 25, some say 30, and I have had many that say 50 or 60. My experience is that the older my clients are, the higher they will set the ages for their children to gain control. For example, if the kids are minors, then most couples will set the restriction to be lifted at age 30. However, if the couple is much older, and the kids are already over age 30, then these couples may set the restrictions to age 40 or 45. We may also want to build certain "incentives" into the estate plan. A common incentive is "if you earn a buck, then the trust will pay you another buck". So, you create an incentive for a child to go out and earn a living. Over the years, I have seen the destruction that is brought to a "trust fund baby". Money and inheritances can ruin a child and ruin a life. That is why many wealthy people will leave large portions of their wealth to charities, instead of their children (and yes, there are income tax advantages and estate tax advantages of doing this, but the primary reason would be to encourage the child to have a productive life). You may also want to provide incentives depending on if a child graduates from college or achieves some other educational benchmark. I do see the risk of using the trust as a "carrot" that is dangled in front of a child to be manipulative. But, some well thought out incentives can really go a long way to help a son or a daughter cope with the vicissitudes of life and be blessing to them, and not a curse.
If you do follow the advice of an estate planning tax professional, make sure that you keep copies of all the estate planning documents. They will be essential in case you have the bad luck to deal with an unqualified party, and your heirs need to prove a claim of negligence. While such a scenario may be rare, estate planning tax advice is not under the oversight of any specific government authority. So the quality of advice you get will depend to a great degree on the experience of you advisor, be it an attorney, accountant, banker, or financial planner. By using an estate planning guide to familiarize yourself with your options so that you know what questions to ask, you will have a much better chance of finding a trustworthy professional to provide your estate planning tax advice.
This line made me realize that the "just one thing" in estate planning, like the movie, is different for each person. The true answer is the quintessential clich, "it depends". The purpose of this article will list some of the most important factors that people should consider. In the end, whatever your "just one thing" is should motivate you to take action and provide "Peace of Mind" for your loved ones. Avoiding Probate - This seems to be the relevant factor cited most frequently, although I disagree that it is the most important reason to plan. Probate in Arizona is not the costly, burdensome procedure that it is in some states like California or New York. Yes, it does cost some money, but in most cases the cost is only a few thousand dollars. The severity of probate depends largely on the make-up of the assets. The more "complicated assets" you have (ie Oil Leases, closely held family businesses, Partnerships, fractional interests in Real Estate, etc.) and the more states in which you own real estate, then you drive up the "Probate Meter" very quickly. If you own real property in more than one state, you will have to have a probate proceeding in each state, which means you will probably need an attorney in each state. But, if your assets are "simple", (a house, a car, some CDs) and primarily located in Arizona, then the "Probate Meter" is very low.
Saving Taxes - People have heard this phrase over and over again in newspaper ads inviting people to public seminars put on by a "national expert" that nobody has ever really heard of. But, how does a Trust really help to save taxes? Under today's tax laws, a common Revocable Trust does not save taxes for most people. First, a Trust doesn't save any income taxes. The Trust is ignored for income tax purposes and all of the income generated by the Trust is taxed to the individual Grantors of the Trust as usual. Also, for a single person, a Trust does not save any estate taxes. But, for a married couple, a Trust can save estate taxes. Most married couples have a Revocable Trust, that splits into an "A" and a "B" trust at the death of the first spouse. The primary reason for this split is that it guarantees that the couple will get two exemptions to apply against the estate tax. One exemption for the "B" trust when the first spouse dies, and then a second exemption against the "A" trust when the surviving spouse passes. Without an A/B trust, it is possible that the exemption of the first spouse could be wasted. But, since the federal estate tax exemption is now set at $5 million, most couples only need one exemption anyway. So, in the end, for probably 95% of married couples, having a trust will not save any estate taxes. Now, this is true as to the Revocable living trust.
Central to estate planning is choosing people to make decisions for you both during incapacity and after your death. These people include trustees, guardians, agents, and beneficiaries. Make sure that you select an agent who knows you and your wishes well. He or she will speak for you when you cannot, so it is vitally important that he or she knows you well. Make sure you and the agent have a clear understanding of his or her role in your estate and that you have clearly communicated your desires.
Restrictions and Incentives for Children - The key question here relates to the timing in which a child should gain unrestricted access, an outright distribution, to the assets after the death of both parents. We would all agree that if a child is a minor, then the assets should be controlled and restricted by an independent trustee for a period of time. What we may disagree on, is the appropriate age in which all restrictions and the independent trustee should be removed. Some clients say age 25, some say 30, and I have had many that say 50 or 60. My experience is that the older my clients are, the higher they will set the ages for their children to gain control. For example, if the kids are minors, then most couples will set the restriction to be lifted at age 30. However, if the couple is much older, and the kids are already over age 30, then these couples may set the restrictions to age 40 or 45. We may also want to build certain "incentives" into the estate plan. A common incentive is "if you earn a buck, then the trust will pay you another buck". So, you create an incentive for a child to go out and earn a living. Over the years, I have seen the destruction that is brought to a "trust fund baby". Money and inheritances can ruin a child and ruin a life. That is why many wealthy people will leave large portions of their wealth to charities, instead of their children (and yes, there are income tax advantages and estate tax advantages of doing this, but the primary reason would be to encourage the child to have a productive life). You may also want to provide incentives depending on if a child graduates from college or achieves some other educational benchmark. I do see the risk of using the trust as a "carrot" that is dangled in front of a child to be manipulative. But, some well thought out incentives can really go a long way to help a son or a daughter cope with the vicissitudes of life and be blessing to them, and not a curse.
If you do follow the advice of an estate planning tax professional, make sure that you keep copies of all the estate planning documents. They will be essential in case you have the bad luck to deal with an unqualified party, and your heirs need to prove a claim of negligence. While such a scenario may be rare, estate planning tax advice is not under the oversight of any specific government authority. So the quality of advice you get will depend to a great degree on the experience of you advisor, be it an attorney, accountant, banker, or financial planner. By using an estate planning guide to familiarize yourself with your options so that you know what questions to ask, you will have a much better chance of finding a trustworthy professional to provide your estate planning tax advice.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: An Understanding Of Asset Protection Planning You have full permission to reprint this article provided this box is kept unchanged.
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