Estate Planning:
Protect Yourself and Your Family

Protect Yourself and Your Family

Estate planning is not just for the rich, it is for everyone. All of your possessions, including cars, bank accounts, personal property, real estate, etc. are part of your personal estate. You won’t be taking these possessions with you when you die so you need a formal estate plan to share them with family, friends, and charities. An estate plan is the best way to protect the rights of your beneficiaries. Without it, the courts will distribute your possessions for you.

Probate

There is a court supervised process for the final disposition of a person’s possessions called probate. A decedent’s estate is inventoried, outstanding debts are paid, and beneficiaries of the estate are verified. Then the net assets from the estate are distributed. Many people pass away “intestate,” meaning without a will. In those cases, the probate court appoints someone to decide how to distribute their cash, assets, and other property. Even those with a will come under probate court jurisdiction and have their inventory and distribution of possessions overseen by the probate court.

Last Will and Testament

Your will is a legal document that provides instructions for how all of your possessions are distributed after your death. An executor who you have named files a death certificate and petitions the probate court to begin the probate process. Your executor is authorized to make decisions with court oversight and distribute assets according to your wishes as you have laid them out in the terms of your will. Your executor resolves disputes that may arise concerning distribution of your assets. Even with a will, the probate process can be expensive and take many months to complete. You can get help from your unbundled provider attorney who will discuss with you if a will is the best solution for your personal circumstances, or whether you should consider a living trust.

Living Trust

A living trust is an alternative to a will with a major advantage of avoiding lengthy and expensive probate processes. A living trust transfers your possessions into a trust during your lifetime. Then after your death, ownership of your property is passed on by the trustee to your beneficiaries. The living trust permits transfer of your possessions to beneficiaries without the need for lawyer’s fees or court filings. Unlike a will, the terms of a living trust can be kept completely private. There may be circumstances where you choose to not transfer certain property into the living trust and in those cases, you will need a will to assign those specific possessions to the beneficiaries you designate. Speak with your unbundled provider attorney to learn more about the advantages of a living trust.

Living Will (Advanced Healthcare Directive)

A living will, also known as an advanced healthcare directive to physicians, is a legal directive that allows your wishes to determine your end of life care. It is used in the event you are unable to communicate with loved ones or physicians. It enables you to issue “do not resuscitate (DNR)” orders to physicians in circumstances where the physician believes there is no hope that you can ever return to independent living. You can also use a living will to inform caregivers that you want your physician to administer palliative care (to ease pain and suffering) in cases where you cannot communicate that to a physician.

Get the Legal Help You Need to Protect Your Estate

Your decision to make a will or living trust to control distribution of your estate is an important decision. There are important differences between the two. A traditional will is public record, and involves a lengthy, expensive probate process. By contrast a living trust is private, and can transfer ownership to your beneficiaries without the need for an attorney or court fees. James F. Kajtoch, Esq. will take the mystery out of making the important decision to provide for your beneficiaries in the best way possible. If you are needing assistance with probate, your attorney can provide you with the necessary guidance and representation to ensure that your loved one’s wishes are honored and each party receives their rightful share of the estate.

Other Facts About Estate Settlement

You also should be aware of the other procedures involved in estate settlement. Here is a quick review of some of them. Your attorney, as well as the organizations mentioned, can provide more details.
Transferring Property

When thinking about transferring your property, what probably first comes to mind are large assets, such as stock, real estate and business interests. But you also need to consider more basic assets:

Safe deposit box contents. In most states, the bank seals the box as soon as it learns of the death and opens it only in the presence of the estate’s personal representative.

Savings bonds. The surviving spouse can immediately cash in jointly owned E bonds. To cash in H and E bonds registered in the deceased’s name but payable on death to the surviving spouse, they must be sent to the Federal Reserve.

Receiving Benefits

The surviving spouse or other beneficiaries may be eligible for any of the following:

Social Security benefits. For the surviving spouse to qualify, the deceased must have been age 60 or older or their children must be under age 16. Disabled spouses can usually collect at an earlier age. Surviving children can also get benefits.

Employee benefits. The deceased may have insurance, back pay, unused vacation pay, and pension funds the surviving spouse or beneficiaries are entitled to. The employer will have the specifics.

Insurance they may not know about. Many organizations provide life insurance as part of their membership fee. They should be able to provide information.

Because estate planning is not just about reducing taxes but also about making sure your assets are distributed as you wish both now and after you’re gone, you need to consider three questions before you begin your estate planning.

Who should inherit your assets?

If you are married, before you can decide who should inherit your assets, you must consider marital rights. States have different laws designed to protect surviving spouses. If you die without a will or living trust, state law will dictate how much passes to your spouse.

Even with a will or living trust, if you provide less for your spouse than state law deems appropriate, the law will allow the survivor to elect to receive the greater amount.

Once you’ve considered your spouse’s rights, ask yourself these questions:

Should your children share equally in your estate?
Do you wish to include grandchildren or others as beneficiaries?
Would you like to leave any assets to charity?

Which assets should they inherit?

You may want to consider special questions when transferring certain types of assets. For example:

If you own a business, should the stock pass only to your children who are active in the business? Should you compensate the others with assets of comparable value?
If you own rental properties, should all beneficiaries inherit them? Do they all have the ability to manage property? What are the cash needs of each beneficiary?

When and how should they inherit the assets?

To determine when and how your beneficiaries should inherit your assets, you need to focus on three factors:

The potential age and maturity of the beneficiaries,
The financial needs of you and your spouse during your lifetimes, and
The tax implications.

Determining Potential Estate Taxes

The next step is to understand some estate tax basics. First you need to get an idea of what your estate is worth and whether you need to worry about estate taxes, both under today’s rates and as exemptions increase over the next several years.

How much is your estate worth?The first step is to list all of your assets and their value, including cash, stocks and bonds, notes and mortgages, annuities, retirement benefits, your personal residence, other real estate, partnership interests, life insurance, automobiles, artwork, jewelry, and collectibles. If you are married, prepare a similar list for your spouse’s assets. And be careful to review how you title the assets, to include them correctly in each spouse’s list.

If you own an insurance policy at the time of your death, the proceeds on that policy usually will be includible in your estate. Remember: That’s proceeds. Your $1 million term insurance policy that isn’t worth much while you’re alive is suddenly worth $1 million on your death. If your estate is large enough, a significant share of those proceeds may go to the government as taxes, not to your chosen beneficiaries, though the estate tax impact will decrease gradually under the 2001 tax act. (See Chart 1.)

Many state tax systems are currently in a state of flux, and the federal rules are likely to change. To be safe, design your estate plan with some flexibility so that certain tax related decisions can be made as events unfold.

Year
2005
2006
2008
2009
2010
2011
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Gift Tax Exemption
$1 million
$1 million
$1 million
$1 million
$1 million
$1 million
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Estate 1 and GST Tax Exemptions
$1.5 million
$2 million
$2 million
$2 million
$3.5 million
$1 million
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Highest estate, GST and gift tax rates
47%
46%
45%
45%
35% (gift tax only)
55%
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Estate tax on $2.5 million
$460,000
$230,000
$225,000
$0
$0
$680,000
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Estate tax on $5 million
$1,635,000
$1,380,000
$1,350,000
$1,350,000
$675,000
$0
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How the Estate Tax System Works

Many states, prompted by changes to the federal estate tax (such as increases in the federal exemption amount and elimination of the credit for state death tax), now impose estate tax at a lower threshold than the federal government does. Previously, most states used a pick-up death tax system, by imposing a tax equal to the allowable federal credit for state death taxes paid. The state and federal estate tax systems were coupled, with the state, in effect, collecting a portion of the tax that would have otherwise been paid to the federal government.

Changes to the federal estate tax, however, have undermined the federal-state estate tax relationship. Although states have reacted differently to these changes, many have “decoupled.” In other words, the states have rewritten their death tax laws so they no longer reference or tie into the current federal rules.

Some states have decoupled by imposing a tax equal to the amount of the former federal credit for state death taxes, while still recognizing the scheduled increases in the federal exemption amount. Others have established their own (lower) exemption amounts, or they’ve referenced the federal exemption amounts that were scheduled to be in effect before the recent changes. So, even if you aren’t subject to federal estate tax, you may be hit with a state death tax.

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