Estate Planning Can Bring Peace of Mind.
Your "estate" is all the property you own minus everything you owe--or your net worth. The goal in planning for the disposition of your estate is twofold: to determine who gets your property after you die and to minimize the estate taxes for your heirs.
A well-designed estate plan strategically incorporates your will, any trusts, powers of attorney, life insurance coverage, investments, anticipated Social Security or retirement benefits, and other financial interests, such as gifting and using the marital deduction. After you have completed your estate plan, review it regularly, especially when there is a change in your marital status, your financial situation, or your place of residence.
Also, review your estate plan on the birth of children or grandchildren or the death of a beneficiary or trustee. Your financial adviser can also help you watch for changes in tax laws and consider special needs, such as a relative who would be unable to manage an inheritance because of illness or disability.
Since estate and inheritance tax laws vary from state to state, creating wills and trusts requires consultation with an attorney, tax adviser, or estate planner experienced in dealing with the laws of estate planning. It's also a good idea to talk with estate-planning professionals, such as those found in banks, accounting firms, or perhaps at your installation's legal office. They have the expertise to help you develop a workable estate plan that will both protect your family and help preserve more of your estate for your family's benefit.
Estate planning can be a rather complex procedure. The larger your estate, obviously the more complex it can be, making it all the more important to plan carefully. To plan your estate sensibly, you need to estimate its value. Before you tally that information, you'll need to know some basic rules governing property ownership. This way, you'll be certain of including only property you actually own.
The laws of the state where you reside will determine what you own, although property ownership rules are very similar from state to state. The major exception concerns how married people own property. Most states and the District of Columbia are called common law states, where the spouse whose name appears in the ownership document owns the property. In the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), spouses typically share ownership of most property acquired during marriage, regardless of how an asset is titled. However, this rule excludes property owned before marriage or through inheritances or gifts received during the marriage.
There are many considerations in defining who owns which assets in a community property state, some of which appear in the following list:
* State in which the property was purchased
* Original purchaser of the property
* Marital status of the original purchaser at the time of purchase
* Manager of the property
* Means of acquiring the property (gift, purchase)
Keep in mind which ownership laws pertain to you. If you live in a community property state or are confused about who owns the asset, check with an attorney who specializes in estate planning. Also, IRS Publication 950, "Introduction to Estate and Gift Taxes," is a good place to start for some basic information. Regarding how much of your estate will be subject to taxation, there is an exclusion limit set by the government. You will owe taxes on that part of your estate that is in excess of the exclusion limit.
The Basic Elements of a Good Estate Plan
Good estate planning begins with preparing a power of attorney, living will, letter of instructions, and/or a living revocable trust, which will set up a trustee (someone you trust to act on your behalf and to make key financial decisions if you become incapacitated).
Granting Durable Powers of Attorney
A power of attorney can be useful when you lack either the legal capacity or the time to manage your affairs. It also can be useful if you become incapacitated, undergo surgery, or are traveling away from home for an extended period of time.
A power of attorney is a written document that authorizes someone else to act on your behalf. If you establish a power of attorney, you are referred to as the principal. The individual to whom you grant a power of attorney to act on your behalf is called the attorney-in-fact, or agent. Your power of attorney can be a general power of attorney, which authorizes your agent to conduct your entire business and affairs. Or it can be a limited or special power of attorney, which is much more restricted. Such a document authorizes your agent to conduct only specified business or perform a single act on your behalf.
For almost everything you can do for yourself, you can grant a power of attorney to someone to do for you. For example, you can give an agent authority to contract, to buy or sell property, to sign checks, to make deposits or withdrawals, to settle claims, or to file lawsuits.
The Living Will
For further peace of mind, you may also consider drafting a health-care directive, or living will, as part of your estate planning. A living will spells our the medical procedures you would want taken if you were to become too ill to state your own wishes. You can specify the sort of treatment you would reject or accept and when those instructions apply. For example, you might want to direct that, in the case of a terminal diagnosis, no cardiac resuscitation would be performed on you, but maximum pain relief would be provided.
To draft a living will, you must be of sound mind and under no mental duress. You may want to discuss with your doctor the situations that should be considered, as well as the options and directions to be included in the document, Make sure your physician has a copy on file. You should review the document periodically and make any appropriate changes or amendments. Remember, too, that new medical advancements could have a bearing on your directions.
Letter of Instructions
Unlike wills and powers of attorney, a letter of instructions is not a formal, legal document. Instead, it's a complete summary of essential information that you prepare as a way of helping your survivors cope during a difficult time. Along with providing important information, you can clarify your wishes concerning a variety of personal and financial matters. Among the areas you should include are the following:
* Instructions on whom to contact and what to do immediately following your death.
* Funeral instructions.
* Directions for handling any important financial matters that may need immediate attention.
* An inventory of investments, insurance policies, and other important personal financial matters, such as any debts you owe or money owed to you.
* Location of any valuable documents, such as deeds, military records, and birth or marriage certificates.
Keep the letter of instructions up to date, since the information is likely to change over time. Store the letter in a safe and readily accessible place, and be sure family members know where to find it or have a copy of it themselves.
Last Will and Testament
Wills often are thought of as the most basic of estate planning tools. They are legal documents that determine which heirs or family members get which parts of your estate. They are composed of a simple statement of what you want to happen to your property after you die.
State laws regulate wills. Consequently, what constitutes a valid will in one state might be useless in another state. Because there is no national, uniform law covering wills, you should seek the help of a professional estate planner or attorney to prepare your will. If you relocate to another state once your will is drafted, you should consult with a local estate-planning attorney to ensure that your will remains valid in your new home state.
Establishing A Trust
A trust is yet another estate-planning tool that can be very powerful and flexible. Simply stated, a trust is an entity that has legal ownership of property designated by you, the grantor, for the benefit of you or your beneficiaries. The property is actually owned by the trust, no longer by the individual. The trust agreement names a trustee to manage the specified property according to your instructions. The trustee can be either an individual, an institution (such as a bank or trust company), or a combination of the two as co-trustees. Although a trust can be a powerful tool, never use it as a substitute for a will.
Giving It Away
Not only does estate planning help determine who will get your property after you die, but it helps minimize the estate taxes that your beneficiaries may inherit. A way to avoid estate taxes is by reducing the size of your estate. You are able to do this by giving away gifts up to $10,000 per individual per calendar year tax-free. The $10,000 in gifts can be cash or equivalent property There also are other gifting options available, but be sure to consult your tax attorney to ensure that your plans comply with the Internal Revenue Code before you give away any such gifts.
Getting the Help You Need
It is important to remember that proper estate planning is not only for the wealthy but essential for everyone. Whether your assets are sizable or modest, you can choose how to leave your property and how to minimize taxes on it. Good estate planning will help ensure that your property will go to those you choose and in an orderly and economical fashion.
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|Publication:||Armed Forces Comptroller|
|Date:||Sep 22, 2001|
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