Estate Planning Overview Update – Key Issues to Consider for Your Wills and More


This overview outlines the key points to consider when designing and executing the best real estate plan. In addition, the work is not limited to signing the documents of your estate plan; you also need to track beneficiary designations, memoranda to trustees, etc. transfer assets to the spouse and not to the trust.

If you do not do anything else after reading this, write and send a "Survivors Memorandum" and review the ownership of the assets, as described at the end of this article.

A comprehensive estate plan can serve many purposes, such as providing survivor benefits, taking care of your children, determining the flow of your assets upon your death, and reducing the amount of taxes your estate will pay during the course of your estate. of your estate. The most important goal is to have peace of mind knowing that your estate will be administered according to your wishes.

Estate Planning Pyramid

Building a pyramid can be useful for understanding everything that goes into an estate plan, much like nutrition and investments. Each level of the pyramid corresponds to a new level of complexity in your family and financial situation: everyone needs the first level, but not all of the subsequent levels are more complex.

Pyramid: level one

The first level of estate planning provides the most basic protections, so it's best for single people without children and with few assets. This level of estate planning usually includes the following forms:

Health Care Proxy: This document allows you to name people to make decisions about your health care and treatment when you are unable to do so. You usually select the surviving spouse and then you have a first and a second alternate, if you wish. Some states call such documents "medical directives" or "medical authorities".

Living Will: This clearly indicates whether or not you want to use heroic ways to prolong your life.

Anatomical gift instrument: It allows you to have organs and other body parts in the hospital to use for people needing a transplant.

Pyramid: level two

The second level is the most appropriate for individuals in engaged relationships. This level includes all the forms listed at the first level, but adds a durable power of attorney. This document gives one power of attorney to another to manage your financial affairs in case of absence or incapacity.

Pyramid: level three

When you have children, you want to make sure they are both cared for and subsidized the way you want. To do this, you must have the will to appoint a guardian, for the "care", and create a trust to manage the assets, to "provide".

A will is an official document that designates your personal representative or executor, all alternates, and guardians and alternates for children under the age of 18, and then instructs your personal representative to pay your debts and allocate your estate according to your wishes.

Trust is an entity that you create and can be used for many purposes. The trustee acts as the owner of what the trust holds, while the beneficiaries derive all the benefits from what the trust holds. For estate planning, trusts are used to reduce inheritance taxes in different ways. Trusted vehicles can also describe how and when assets are distributed. For example, the settlor of a trust might insist that assets not be paid to children before the age of 35. The trust vehicle could also indicate where assets flow if all family members die without problems. For example, the assets could be transferred to a charity or an educational institution.

Providing survivor benefits: You need to define how your assets and life insurance are distributed after your death to ensure that your resources allow survivors to maintain the same standard of living during their life expectancy that you all had during the course of your life. your life. life. If your investments are not sufficient, even after liquidation of certain types of personal property (for example, a second home), life insurance is necessary.

Life Insurance: The term life insurance, providing only for a death benefit, covers the gap between the assets required to maintain the lifestyle of the survivors and the actual assets available. Any life insurance, variable or otherwise, should be used only when permanent insurance is required, as in the case of maintaining the liquidity of your estate throughout your life.

Asset Flow: After determining the assets needed to support the lifestyle of the survivor, you determine who the assets are transferred to. For example, at levels one and two, you can leave everything directly to the survivors, while at levels three to six, you use a trust and at level six, you can even separate some of the assets by donate now.

Asset Control: At levels one and two, survivors have total control over the assets. At higher levels, trust vehicles are used for estate tax savings. However, you are also drawing increased attention to assets: you have engaged a trustee to ensure that the surviving spouse maintains their lifestyle while looking after the interests of other beneficiaries, such as children. In this way, the trustee will try to preserve the assets of the trust in the best way possible for the longest possible duration. Finally, the trustee must distribute the assets according to your instructions. If the assets went to a survivor, they are under no obligation to respect your wishes. You can not achieve your estate planning goals.

Trustees: When designing the estate plan, many choices are built around the trustee that you select for a particular role.

Personal Representative or Executor: This is the person who "gathers" all estate assets, pays death fees and transfers ownership of property to the surviving spouse or trust. It is a task of about nine months.

Tutor: This is the person you choose to love and look after your children in your absence. The spouse chooses the surviving spouse, then a second or third choice beyond. This work lasts until each child has reached the age of majority (eighteen).

Trustee: This person potentially has the most long-term work because he / she must manage the assets of the trust and make distributions of income and sometimes principal of the surviving spouse, children and even grandchildren. According to the terms of trust, this job could last until the children are young adults.

Designations and Ownership of Recipients: The property and the way the life insurance product and the pension plan asset flows are described below.

Pyramid: level four

This level of planning concerns state taxes. When the combined potential estate of a husband and wife exceeds one million dollars and other beneficiaries for whom they wish to maximize their estate are used, trusts are generally used. States like Massachusetts impose an inheritance tax of over $ 1 million. Other states have similar amounts, but many are increasing, such as New York, which will match the federal credit in 2019. Therefore, additional planning is required if you reside in a state subject to an inheritance tax.

Pyramid: level five

The fifth level contains trusts that deal with federal and state estate taxes. Congress has retained the unified tax credit for gifts and estates, which now stands at about $ 5.34 million (adjusted for inflation) with an inheritance tax rate of 40% ( against 35% last year). In addition, the unused portion of a deceased spouse's estate tax credit is "transferable", which allows it to be transferred to the surviving spouse's estate.

With the trust structure, sub-trusts can be created to use the credit and deduction for marriage expenses. This structure takes advantage of the first and second mortgages. In contrast, wills that pass all assets to the surviving spouse would only benefit from the credit at the time of the second death. The total tax savings for an estate of $ 10 million or more are greater than $ 1.75 million for combined estates.

Life Insurance Trust: You can also make irrevocable trust to the owner of any life insurance to exclude any proceeds from the death of both estates, thereby avoiding inheritance taxes. That is, the product is entirely free of inheritance tax. However, this requires an irrevocable transfer to the trust; you can not recover insurance. You can use this trust to receive an insurance product that allows you to pay estate taxes, which preserves a larger portion of your estate after taxes without increasing the taxable wealth.

Pyramid: level six

The final level is complex estate planning that minimizes federal and state estate taxes over several generations. An example of this is trust from generation to generation. These trusts transfer assets from the estate of the principal to his grandchildren. This allows the principal's estate to avoid the taxes that would apply if the assets were transferred directly to their children. The principal's children can still enjoy the financial benefits of the trust by accessing any income generated by the trust while leaving the assets in trust with their grandchildren.

Other Entities: It would be important to separate the asset by donation now if you want to guarantee minimum funding for children, for example by guaranteeing the coverage of their tuition fees.

529 Plans: You can use 529 donation plans or trusts to cover a child's tuition.

After the execution of the plan

Titles of ownership and beneficiary designations

Once the documents and insurance are in place, be sure to review and complete the following:

Qualified plans (IRA, 401k plans, etc.):

First beneficiary – the surviving spouse (so that he can defer the proceeds of the sale on an IRA and so carry forward the income tax); and

Secondary beneficiary – your children (or your own revocable, depending on whether you want assets to be controlled or available to children).

Life insurance and annuities:

First beneficiary – when it does not belong to a revocable trust belonging to an irrevocable trust, such as a collective term, (for tax benefits on estates, for example, use first-time credit); and

Secondary beneficiary – surviving spouse (in case of dissolution of the trust for any reason).

other assets

Consider changing the ownership of all jointly owned assets to the property of one of you. All assets held as roommates with survivor rights will go to the survivor under the law and will never reach your revocable trust. (You want to make sure that you have enough assets in the trust so that the tax reduction effect is fully realized.)

You may even want to fund your trusts by transferring the investment accounts to your own revocable trust. It does not affect your income taxes.

You can also choose to fund your revocable trust now. This will save a lot of time to the executor and the lawyer that he will hire, otherwise you will have to do it after your death.

Memorandum to survivors

Compile a reference book or add to your financial plan book photocopies of important documents, identifying the location of the originals, and then add a list of important contacts, instructions to your executor and trustee, and other notes important to your family and friends. You would update this information at least once a year with new statements of assets (to consider when you collect information to prepare your taxes). To be more specific, the list (and copies) should include:

Place of initial will, trust, etc.

Location of health care proxy and durable power of attorney;

List of professionals with contact details: doctor, lawyer, CPA, etc .;

List of trustees with their contact information: health care agent, guardian, executor and trustee, de facto attorney for a durable power of attorney, etc.

Location of insurance policies and valuables such as original titles, etc.

Safe deposit box for valuables and items # 5 or # 7;

List of all bank and investment accounts and location of all share certificates or other investment documents;

List of all mortgages, loans and credit card accounts;

Any evaluation or other list of articles by value;

All automatic flows that must be addressed (stopped, modified); and

List of all password protected accounts (e-mail, credit cards, etc.) and where to find the password … and the password to access the password.

In addition, after reviewing this overview, tell us how we can help you put your succession plan in order.

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