Although estate planning can be a complex task, a well-informed plan can make a big difference in what is left for your loved ones.Before you begin to take action on your estate plan, it’s important to understand the key topics that may arise as you address your specific needs.

Maximizing what you leave behind

• Without careful planning, taxes and the probate process can reduce the amount you leave to your beneficiaries.
• This will be a key theme throughout your estate planning efforts. It’s important to get legal or tax advice and think through how each asset will pass to your beneficiaries, as well as your estate as a whole. The best options may vary by the asset type, asset size, your age, or many other factors.
• You’ll want to be thoroughly informed on what actions you can take or plan now to make sure as little as possible is lost to taxes, court fees, and other expenses.

Estate, inheritance, and gift taxes

• A big part of maximizing what you leave behind is minimizing taxes. Federal taxes on gifts and estates can be among the highest assessed on any financial transaction. In addition, some states levy their own estate or inheritance taxes.
• Both estate and gift taxes usually have exemption limits, meaning you can give up to a certain amount without incurring tax. Many people use the gift tax exemption to transfer assets while they are still living, as part of their strategy to
  maximize what their beneficiaries receive.
• Estate and inheritance taxes usually are based on the value of the taxable estate and are paid before the assets are distributed to the beneficiaries.

Will

• Will is a legal document that coordinates the distribution of your assets after death and can appoint guardians for minor children.
• Will allows you to communicate your wishes clearly and precisely. It is advisable to work closely with an attorney to create and update your will.
• Without a will, known as dying intestate, the state in which you reside decides how to distribute your assets to your beneficiaries according to its laws.
• A will generally includes Designation of an executor, who carries out the provisions of the will.
• Beneficiaries who are inheriting the assets.
• Instructions for how and when the beneficiaries will receive the assets.
• Guardians for any minor children.
• For assets that move outside the will and probate process, if the named beneficiary conflicts with anything stated in the will, then the named beneficiary prevails and such asset will not have to go through probate.
• Thus, it’s essential to name beneficiaries on assets that allow it—such as IRAs, 401(k) s, and brokerage accounts—and to keep those designations up to date. Note that, generally, if you are married and you name anyone other than your spouse as a 401(k) beneficiary, consent of your spouse is required.
• For assets that do not allow for the naming of beneficiaries (such as some bank accounts and real estate), the will is the place to designate who will get them, as well as any related special instructions.
• Some types of assets allow for the naming of beneficiaries (such as IRAs and investment accounts), which enables a direct transfer of the asset without involving the will and has greater authority than the will. These types of assets usually avoid probate and the associated fees and may avoid certain taxes, helping you maximize what you leave to your beneficiaries.
• Assets that pass outside of the will must undergo the probate process, unless provided otherwise in a Trust.
• We offer Will Preparation services only as an adjunct to the estate planning and Trust set up services.

• We offer Will Preparation services only as an adjunct to the estate planning and Trust set up services.

 
Probate

• Probate is a legal process for settling an estate, whether one has a will or not. The probate process varies by state—many states offer a quicker, less expensive option if the assets subject to probate are below a certain value (for example, $25,000 or $50,000).
• Probate is also on public record, so it decreases the level of privacy of the estate.
• Generally speaking, an asset that allows the owner to name a beneficiary will not have to go through probate.
• Common Types of Inherited Assets that do not go through Probate
  • Personal property, including valuable items, Investment, brokerage, or cash accounts with Termination on Death (TOD) instructions in place
  • Assets held as tenants in common Assets with joint ownership with right of survivorship

Trust

• A trust is traditionally used for minimizing estate taxes and can offer other benefits as part of a well-crafted estate plan.
• A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.
• Since trusts usually avoid probate, your beneficiaries may gain access to these assets more quickly than they might to assets that are transferred using a will. Additionally, if it is an irrevocable trust, it may not be considered part of the taxable estate, so fewer taxes may be due upon your death.
• Assets in a trust may also be able to pass outside of probate, saving time, court fees, and potentially reducing estate taxes as well.

Benefits of trusts

• Control of your wealth. You can specify the terms of a trust precisely, controlling when and to whom distributions may be made. You may also, for example, set up a revocable trust so that the trust assets remain accessible to you during your lifetime while designating to whom the remaining assets will pass thereafter, even when there are complex situations such as children from more than one marriage.
• Protection of your legacy. A properly constructed trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not be adept at money management.
• Privacy and probate savings. Probate is a matter of public record; a trust may allow assets to pass outside of probate and remain private, in addition to possibly reducing the amount lost to court fees and taxes in the process.

Basic types of trusts

• Marital or “A” trust Designed to provide benefits to a surviving spouse; generally included in the taxable estate of the surviving spouse
• Bypass or “B” trust Also known as credit shelter trust, established to bypass the surviving spouse’s estate in order to make full use of any federal estate tax exemption for each spouse
• Testamentary trust Outlined in a will and created through the will after the death, with funds subject to probate and transfer taxes; often continues to be subject to probate court supervision thereafter
• Irrevocable life insurance trust (ILIT) Irrevocable trust designed to exclude life insurance proceeds from the deceased’s taxable estate while providing liquidity to the estate and/or the trusts’ beneficiaries
• Charitable lead trust Allows certain benefits to go to a charity and the remainder to your beneficiaries
• Charitable remainder trust Allows you to receive an income stream for a defined period of time and stipulate that any remainder go to a charity
• Generation-skipping trust Using the generation-skipping tax exemption, permits trust assets to be distributed to grandchildren or later generations without incurring either a generation-skipping tax or estate taxes on the subsequent death of your children
• Qualified Terminable Interest Property (QTIP) trust Used to provide income for a surviving spouse. Upon the spouse’s death, the assets then go to additional beneficiaries named by the deceased. Often used in second marriage situations, as well as to maximize estate and generation-skipping tax or estate tax planning flexibility
• Grantor Retained Annuity Trust (GRAT) Irrevocable trust funded by gifts by its grantor; designed to shift future appreciation on quickly appreciating assets to the next generation during the grantor’s lifetime

Revocable vs. irrevocable Trusts

• Revocable trust:
  • Also known as a living trust, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor’s) lifetime. It is flexible and can be dissolved at any time, should your circumstances or intentions change. A revocable trust typically becomes irrevocable upon the death of the grantor.
  • You can name yourself trustee (or co-trustee) and retain ownership and control over the trust, its terms and assets during your lifetime, but make provisions for a successor trustee to manage them in the event of your incapacity or death.
  • Although a revocable trust may help avoid probate, it is usually still subject to estate taxes. It also means that during your lifetime, it is treated like any other asset you own.

• Irrevocable trust:
  • An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust.
  • An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate.
  • Since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets (although distributions will typically have income tax consequences).
  • It gives protection from a legal judgment against you.
  • It gives protection from your personal creditors