Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. A major concern for drafters of estate plans is federal and state tax law.
An estate is the total property, real and personal, owned by an individual prior to distribution through a trust or will. Real property is real estate, and personal property includes such things as cars, household items, and bank accounts. Estate planning distributes the real and personal property to an individual’s heirs.
Wills and trusts are common ways in which individuals dispose of their wealth. Trusts, unlike wills, have the benefit of avoiding probate, a lengthy and costly legal process that oversees the transfer of assets. Sometimes, though, it will be useful to make inter vivos gifts (gifts made while the donor is alive) in order to minimize taxes. The Federal Gift Tax exempts certain levels of lifetime gifts.
Estate Planning Devices
Estate planning involves the will, trusts, beneficiary designations, powers of appointment, property ownership (joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), gift, and powers of attorney, specifically the durable financial power of attorney and the durable medical power of attorney. After widespread litigation and media coverage surrounding the Terri Schiavo case, virtually all estate planning attorneys now advise clients to also create a living will. Specific final arrangements, such as whether to be buried or cremated, are also often part of the documents, and more sophisticated estate plans may even cover deferring or decreasing estate taxes or winding up a business.
Many people (and even some attorneys) confuse a living will with a durable medical power of attorney. A living will sets out directives concerning end of life decisions, whereas a durable power of attorney gives all medical decision making authority to an appointed individual upon incapacity, including end of life decisions. Some people have both a living will and a health care power of attorney. Some, who wish to give complete discretion to a loved one, including end of life decision, have only a health care power of attorney. An estates and trusts attorney can help explain these options to you.
Taxation of Life Insurance
Because the United States tax code does not tax life insurance proceeds as income, a life insurance trust could be used to pay estate taxes. However, if the decedent holds any incidents of ownership, like the ability to remove or change beneficiary, the proceeds will remain in his estate. For this reason, the trust vehicle is used to own the life insurance policy and it must be irrevocable to avoid inclusion in the estate.
Why Should I Hire An Attorney?
Only an estates and trusts attorney who regularly practices in the fields of wills, trusts, probate and estate planning is able to provide you with really sound legal advice as you put your estate plan into place. Attorneys who specialize in estate planning will know the most current tax laws and get help you get the most money to your heirs.
Often the expense incurred in retaining an attorney to prepare and help you put an estate plan into place is worth hundreds of times what you and your family might pay in taxes with no planning.
Contact LegalHelpLawyers.com today for legal assistance with estate planning!