A carefully conceived estate plan can be one of the most important
gifts you give to yourself and your loved ones. An estate plan
provides peace of mind for you and gives clear direction to your
loved ones about your wishes. It may also help you reduce or avoid
estate taxes and preserve more of your hard-earned assets. This
outlines the steps you should take as part of the estate planning
process.
Make A Will
Writing a will is the only way you can ensure that your assets
are distributed according to your wishes to family members or
other beneficiaries. With no will in place, state law determines
what happens to your property. A will also lets you place certain
conditions on your assets, such as holding assets in trust for
your children until they reach a certain age. Without these conditions,
your children will receive their inheritance outright at age 18.
A will also allows parents to name a guardian who will care for
their minor children should something happen to both parents.
In the absence of this provision in a will, the court will appoint
a guardian for the children.
Determine How Individual Assets Should Be Distributed
Don’t underestimate the importance of this step and don’t
assume that family members will work things out among themselves.
Instead, you should openly discuss with the individuals involved
your desire for them to have items of sentimental as well as monetary
value. This avoids misunderstandings and helps to ensure that
your treasured possessions go to the person(s) you have in mind.
Review And Update Your Beneficiary Designations
Life insurance policies, retirement plans, and payable-on- death
(POD) accounts are all considered contracts in the sense that
the beneficiaries you designate will inherit these assets directly,
regardless of what your will states. Make sure you update your
beneficiary designations after a marriage, divorce, or other major
life event.
Select A Qualified Executor For Your Estate
An executor is responsible for paying your debts and distributing
your assets in accordance with your will. The most obvious choice
for many individuals is their spouse or oldest child, but you
may want to consider other options, particularly if settling your
estate is likely to be a lengthy or complicated process. A professional
executor, such as a CPA or other trusted advisors, will be more
experienced at administering estates and also add the benefit
of impartiality in distributing your assets.
Make Sure Your Family Members Know Where To Find Vital
Documents
It’s a good idea to prepare a list that shows where all
important documents and assets are stored. This should include
birth, marriage and death certificates, especially of children,
spouses and other potential heirs. You will also want to include
important financial records, such as stock certificates, insurance
policies, and retirement account statements. Be sure to provide
your executor with the names of your attorney, CPA, stockbroker,
and other advisors.
Take Advantage Of The $1,000,000 Estate Tax Exemption
Federal estate taxation rates are among the highest tax rates
in America, so it’s important that you carefully plan the
disposition of your estate. The estate-tax exemption allows you
to leave bequests worth up to $1 million free of any federal estate
tax to beneficiaries other than your spouse or charities. If you're
married, you and your spouse are each entitled to separate $1
million exemptions. The current $1 million figure is scheduled
to increase in stages over the next few years: to $1.5 million
effective January 1, 2004, $2 million in 2006, and $3.5 million
in 2009. Currently, the estate tax is scheduled to be repealed
in 2010, but to return in 2011 unless the law is changed in the
interim.
Maximize The Annual Gift Tax Exclusion
To minimize future estate costs, you can make annual tax-free
gifts of $11,000 each to any number of individuals. Couples can
give combined gifts of $22,000 per recipient. In addition, the
future appreciation on the gifted assets will be transferred out
of your estate.
Make A Living Will
Also known as an advance healthcare directive, a living will
expresses to your family and to your healthcare providers what
medical procedures (life-prolonging, pain-relief, etc) you do
and do not want and those you do not want performed in the event
you are unable to express these desires yourself. You can also
appoint a “healthcare proxy” to make decisions on
your behalf that are not covered by your living will. Discuss
your desires with your family and your healthcare proxy.
Draw Up A Power Of Attorney
If you are incapacitated or otherwise unable to take care of
your financial affairs, a durable power of attorney will give
a trusted individual the ability to pay your bills and manage
your affairs during your incapacity. Your will has no effect during
your lifetime and a living will only addresses your medical affairs.
Durable powers of attorney fill in the end-of-life planning gap
and avoid expensive court proceedings to have a guardian or conservator
appointed to handle your affairs.
In summary, an effective estate plan requires the advice and
experience of professionals skilled in estate planning. It also
necessitates thoughtful planning not only about the distribution
of your property, but also, about how you want to manage certain
healthcare issues. I can work with your attorney and other professionals
to build an estate plan that meets your objectives.
Theodore Kleinman, CPA
(503) 297-5256
