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?
• If you want to limit your spouse’s flexibility regarding the inheritance, have you created a Q-TIP trust?
• 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?
Simplify Estate Planning With a Living Trust
Living trusts are one of the most prevalent estate planning tools in use today. 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 percent and 4 percent 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.
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.