The need to provide security and a better lifestyle are often the underlying factors in what drives us to take the time, energy and money to develop an estate plan in the first place. After all, if we didn't want to take care of loved ones after we're gone, we wouldn't bother completing an estate plan.
This is the first step and albeit time consuming, can often prove rewarding, after all, this represents what you have worked a lifetime acquiring. Organize all of your financial information, deeds and records. This will develop an accurate picture of your estate. Do not overlook non-tangible assets, like insurance policies, investments, personal property (like furniture or art), and any collections you might have.
Once organized, you have a clear picture of your estate and will be able to determine what, if anything, is at risk. Although this is best done with the assistance of a qualified, experienced estate attorney you can start the process by asking yourself these questions:
Your estate plan will effect you AND your family. You will want to discuss with your family your wishes for your future should you become incapacitated and when you die. You will also want to listen. It is surprising to our clients that their family not only has unexpressed concerns but equally important, solutions to possible future problems that may arise. Open dialog is not only empowering but helps to reduce the chances a family member will argue over your plan later. If you suspect there may dissention in the family at your death, consider implementing an advanced strategy that is more difficult for anyone to contest your plan.
Try playing the "What If" game together with your loved ones. By this we mean you look at your best and worst case scenarios (and everything in between). "What if I become incapacitated and need nursing home care?" "How would that be paid for?" "Who would I want to manage my affairs for me?" "What if my spouse becomes incapacitated and outlives me?" These are all questions should be asked and answered.
Imagine that you are incapacitated or disabled. Who do you want to care for you? Where will they take care of you? How will they use your assets and who shall you name to manage your affairs.
Now imagine that you're no longer around. Who do you trust to manage your affairs and care for your family?
Is it a relative, friend, or even business associate? Whomever you select will need to have the time to carry out your plan, and the skills to do so. Select wisely, and discuss your wishes with that person so that they know how you want things to be taken care of.
You will also want to decide who will be your beneficiaries and what they what they will recieved and when. If you are married, chances are (but not always) your spouse will be your primary beneficiary. There are cases however, when this may not be the best plan. For example, what if your spouse is incapacitated and receiving public benefits in a nursing home. A direct bequest to him or her will effectively stop these benefits. Would you want a plan that makes those assets available to your spouse but avoids having those assets spent-down for their long term care needs? Would you will want to preserve your assets if you could?
Similarly, if you have an incapacitated or disabled child or grandchild, would you want to create a plan that allows you to enrich their life while maintaining their eligibility their public benefits.
Best of all, would you want a plan for your beneficiaries that provides for them and protects their inheritance regardless of where life leads them? Future divorces, spendthrift natures, unexpected lawsuits, even if inconceivable provides a plan that preserves the may be perfectly healthy, but you may still wish to delay their receipt of the estate. A wayward son may be ill-equipped to receive a lump-sum inheritance. You may instead wish to establish a trust that distributes portions of the trust assets over time.
These are just a few examples.
Each person has their own individual needs and desires. You may be married. You may not be. You might have adult children. Or you might have a disabled grandchild. Regardless, there are certain documents that we consider "foundational" to your overall estate plan. These include:
You may or may not require additional documents, depending upon your particular circumstances. In addition, you should investigate the relevance and need for such tools as Long-Term Care Insurance, Life Insurance, and sophisticated estate tax planning instruments.
One of the easiest ways to provide for loved ones is by making annual gifts. Gifting today not only reduces your estate (which no longer is a problem for most of us), but also allows you to share in the joy a gift can bring.Each and every U.S. citizen can give away up to $14,000 per person each year. A husband and wife together can give $28,000 to any child, grandchild... or anyone else they feel like. For instance, if a couple has two children and 8 grandchildren, they can gift a total $280,000 (10 beneficiaries x $22,000) per year, completely free of gift and inheritance taxes.
With the passage of the Taxpayer Relief Act of 1997, Congress began raising the original $10,000 limit to account for inflation. However, as politicians often do, they put some restrictions on the increases. Congress stipulated that the $10,000 limit would rise with inflation, rounded down to the nearest thousand.
Suppose inflation is 3%; the limit would rise to $14,420.00, but be rounded down to $14,000. The next year, it would rise to $14,853, only to be rounded down again to $14,000. In 2002, the gifting limit changed for the very first time to $11,000; then to $13,000; then to the $14,000 where it has remained for the last 3 years.
What happens if you gift too much (i.e., over the $14,000 "annual gift exclusion")? Then you will have to file a gift tax return to report every dollar over the annual gift exclusion.An alternative is to have the amount over $14,000 apply towards your Unified Credit. Everyone is given this credit by the IRS, and it is usually used for calculating estate taxes. Currently, the Unified Credit shelters $5.43 million of your estate from taxes.
If you give a daughter $150,000 (and you could only gift up to $14,000), then the remaining $136,000 could be subtracted from your Unified Credit. Your Unified Credit will be reduced to $5.294 million but your daughter will not be taxed on the gift.
Another concern when gifting is that you give away too much of your estate, not to trigger a tax, but to maintain your lifestyle or make gifts that might have an adverse impact should you need long term care within 5 years of the gift . Many people automatically gift, and end up giving too much of their assets to loved ones. Gifting should always be part of an overall estate plan that takes into account your current needs.
Remember, before you write that annual gift check, make sure you double-check with your estate planning team.
Consider setting up a Living Trust in addition to just a Will. Living Trusts allow you to avoid probate, maintain privacy, and facilitate the transferring of assets. Living Trusts also help married couple's maximize both of their Unified Credits.
Many people do not consider estate taxes when setting up an estate plan. Estate tax rates, like gift taxes, can climb as high as 50%. Effectively funding a trust with tax-advantaged vehicles, like municipal bonds and cash-rich life insurance, can help reduce taxes even more.
The best thing you can do to provide for your family is talk with them about what you want to accomplish. Do you want all of your grandchildren to go through college? How do you do you want your property divided? How should your money be used?
The more you communicate with trusted family members, the greater chances your estate will be divided up exactly the way you want.