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Estate Planning

Questions to Ask When Drafting an Estate Plan

Because you’ve worked hard to create a secure and comfortable lifestyle for your family, you’ll want to ensure that you have a sound financial plan that includes trust and estate planning. With some forethought, you may be able to minimize gift and estate taxes and preserve more of your assets for those you care about.
A qualified financial professional and tax professional can help ensure you are minimizing taxes and maximizing gains for your heirs. You can bring this four-part checklist to your initial meeting to discuss how to make your plan comprehensive and up-to-date.

Part 1: Communicating Your Wishes

  • Do you have a will?
  • Are you comfortable with the executor(s) and trustee(s) you have selected?
  • Have you executed a living will or health care proxy?
  • Have you considered a living trust to avoid probate?
  • If you have a living trust, have you titled your assets in the name of the trust?

Part 2: Protecting Your Family

  • Does your will name a guardian for your children if both you and your spouse are deceased?
  • Are you sure you have the right amount and type of life insurance for survivor income, loan repayment, capital needs, and all estate settlement expenses?
  • Have you considered an irrevocable life insurance trust to exclude the insurance proceeds from being taxed as part of your estate?
  • Have you considered creating trusts for family gift giving?

Part 3: Reducing Your Taxes

  • If you are married, are you taking full advantage of the marital deduction?
  • Are you making gifts to family members that take advantage of the $13,000 annual gift tax exclusion?
  • Have you gifted assets with a strong probability of future appreciation in order to maximize future estate tax savings?
  • Have you considered charitable trusts that could provide you with both estate and income tax benefits?

Part 4: Protecting Your Business

  • Do you have a management succession plan?
  • Do you have a buy/sell agreement for your family business interests?

Because of the possibility of human or mechanical error by Financial Communications or its sources, neither Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2011 McGraw-Hill Financial Communications. All rights reserved.

Stretch IRA: A Handy Estate-Planning Tool

A stretch IRA is a traditional IRA that passes from the account owner to one or more younger beneficiaries at the time of the account owner’s death. Since the younger beneficiary has a longer life expectancy than the original IRA owner, he or she can “stretch” the life of the IRA by receiving smaller required minimum distributions (RMDs) each year over his or her life span. More money can then remain in the IRA with the potential for continued tax-deferred growth.

Employing the stretch technique by naming a younger beneficiary (such as a child or grandchild) could provide significant long-term benefits. The uncertain nature of estate tax laws could make a stretch IRA a worthwhile tool for those with multi-million dollar estates. While the new estate tax limits currently allow a $5 million lifetime exclusion ($10 million for couples) and a 35% tax rate on amounts over that threshhold, they are scheduled to sunset after 2012.

Creating a stretch IRA has no effect on the account owner’s RMD requirements, which continue to be based on his or her life expectancy. Once the account owner dies, however, beneficiaries begin taking RMDs based on their own life expectancies. Whereas the owner of a stretch IRA must begin receiving RMDs after reaching age 70 1/2, beneficiaries of a stretch IRA begin receiving RMDs after the account owner’s death. In either scenario, distributions are taxable to the payee at current income tax rates.

Beneficiaries have the right to receive the full value of their inherited IRA assets by the end of the fifth year following the year of the account owner’s death. However, by opting to take only the required minimum amount instead, a beneficiary can theoretically stretch the IRA and tax-deferred growth throughout his or her lifetime.
Other key considerations to note:

  • New rules allow beneficiaries to be named after the account owner’s RMDs have begun, and beneficiary designations can be changed after the account owner’s death (although no new beneficiaries can be named at that point).
  • The amount of a beneficiary’s RMD is based on his or her own life expectancy, even if the original account owner’s RMDs had already begun.

Note that the information presented here applies to traditional IRAs bequeathed to a non-spousal beneficiary. Special rules apply to spousal beneficiaries. Contact your financial advisor or tax professional for more information.
© 2011 McGraw-Hill Financial Communications. All rights reserved.

Simplify Estate Planning with a Living Trust

Living trusts are one of the most prevalent estate planning tools in use today.1 Many people use a living trust instead of a will to avoid probate, a court-supervised process for transferring assets to the beneficiaries listed in your will, which can be expensive and exposes your estate to public record. A living will does not avoid the estate tax but makes the settlement process much easier.

Living trusts are most appropriate for those with substantial assets or complex estates. In general, financial planners frequently recommend them for individuals or couples with an estate of $100,000 or more. Estates of this size typically are subjected to probate in the deceased’s state of residence, which can cost anywhere between 2% and 4% of the estate’s value in court and legal fees. Young couples without significant assets and without children, who intend to leave their assets to each other when the first one of them dies, may not benefit from having a living trust.

Naming a Trustee

When establishing a living trust, most people name themselves as the trustee in charge of managing the trust’s assets. You should also name a successor trustee, either a person or an institution, who will manage the trust’s assets if you ever become unable or unwilling to do so yourself. A living trust is not irrevocable, so you can amend it at any time.
Almost any type of asset can be placed in a trust, including savings accounts, stocks, bonds, real estate, life insurance, business interests, art, collectibles, and personal property. To fund a trust, you need to change the name or title on your assets to the name of the trust. Be sure to be thorough: Anything that remains in your name will not be considered part of the trust.

Spouses and Domestic Partners

Since a living trust can hold both separate and community property, it can be a convenient estate-planning vehicle for spouses and registered domestic partners to plan for the management and ultimate distribution of their assets in one document.

Wills Versus Living Trusts

Wills Living Trusts
Probate Subject to probate Become public record Not subject to probate Remain private
Cost Generally cost less to create but probate costs can be significant. Generally cost more to create but avoid probate.

An estate planning attorney can advise you on whether a living trust is appropriate for your personal situation. This type of “substitute will” may help you transfer assets to your heirs in a way that maintains your privacy.
Source/Disclaimer:
1The information presented here is not intended to be tax or legal advice. Each individual’s situation is different. You should speak to a tax or legal professional to discuss your personal situation.
© 2012 S&P Capital IQ Financial Communications. All rights reserved.

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