Understanding The Need For Estate Planning Do you have a plan for your estate? If your answer is "no," think again. You do have an estate plan, even if you do nothing. That's because state law determines how your assets will be distributed if you do not develop your own plan. Problems Can Arise If You Do Not Plan Your Estate: Your assets may not pass according to your wishes. Estate taxes may reduce by half the value of the property received by your family. Your family and other beneficiaries may suffer unnecessary expense, delay and frustration. What Is An Estate? You do not have to consider yourself wealthy to have an estate. An estate is the combined value of everything you own. This includes cash, stocks and bonds, life insurance, retirement benefits, annuities, personal residence, other real estate, any business interest, automobiles, jewelry, art, collectibles, and other personal property. Your estate is all of the property that you have worked hard to build and protect. Although you may not think of yourself as wealthy, the combined value of all of your assets may be sizable. An Effective Estate Plan Can: Provide detailed instructions for the distribution of your property. Reduce or avoid probate fees and associated legal costs. Provide proper beneficiary designations for pensions and life insurance. Create protective trusts for you, your spouse, minor children, children with special needs, adult children or grandchildren. Minimize or eliminate loss in estate value caused by estate taxes. Keep your financial affairs private and confidential. The Importance Of Planning Ahead A will is the primary document for transferring property when you die. If you die without a will, state law will control how your property is distributed. Estate settlement is more troublesome-and frequently more costly. A well-drawn plan usually addresses these concerns: Appointing An Executor Your will should name an executor who acts as your personal representative when you die. His or her responsibilities will include: filing your will in probate court; distributing assets to beneficiaries; filing federal and state tax returns and paying taxes; paying your estate's final debts and expenses and arranging for distribution of life insurance and retirement plan benefits. Establishing Trusts An estate planning trust is a legal document that can direct the management and distribution of your property after your death. A trust can also be used to manage property during your lifetime in the event of disability or incapacity. A will simply tells an executor how to distribute your assets. To accomplish longer-term goals, such as funding a child's education, providing for an elderly parent or reducing the size of your taxable estate, your estate plan should include one or more trusts. Transferring Your Property Take the time now to determine who should inherit your assets, and when the distribution of your property should be made to these individuals. A carefully drawn estate plan will ensure that these important steps will be carried out for your family members. Joint Property Title to property jointly owned by husband and wife passes immediately to the survivor when the first spouse dies. While this is convenient and avoids probate, it may not be the best method for maximizing estate tax credits. In fact, if all property is owned jointly, up to $1 million of additional tax credit dollars may be lost. Retitling some jointly owned property to individual ownership may be an appropriate part of your planning process. Living Trusts A living trust can reduce administration fees and probate delays. These trusts do not reduce estate taxes, but can add privacy and professional management to your estate preservation and distribution plan. Questions To Consider When Developing Your Estate Plan Who Will Inherit Your Assets? If you are married, how will you want to provide financially for your spouse? Should your children share equally in your estate? Perhaps one child has special needs and should receive special consideration in the distribution or management of your property? Do you wish to include grandchildren or others as beneficiaries? Would you like to leave cash or other property to a charity? Which Assets Will They Inherit? Should certain property pass to a particular individual? Will closely held business stock pass only to those children who are active in your business? Will you distribute assets of comparable value to your other children? If you own rental or commercial property is it appropriate for all beneficiaries to inherit it? Consider the needs of each beneficiary, as well as the willingness and ability to manage a particular asset. When Should They Inherit Them? The age and maturity of beneficiaries are two important aspects to consider. Should payments be made over a period of years as beneficiaries mature? Should some assets be distributed immediately? Should assets be placed in a trust? Although trusts can provide tax benefits and professional asset management, they can limit access to property. The size of your estate will affect your distribution decisions. Could a large inheritance alter a beneficiary's work ethic or personality? To avoid this result, large estates are often distributed to beneficiaries over time, rather than in a lump sum. Should beneficiaries start receiving assets now? If so, you may want to start a gifting program. Taxes Can Consume Your Estate Estate taxes may be the largest single tax expense you will ever face. Many people don't realize that the estate tax rate is greater than the income tax rate. While personal income tax rates range from 15 to 39.6 percent, federal estate tax rates start at 37 percent and rise quickly to 55 percent*. Without proper planning, more than half of what you've spent a lifetime building could disappear when you die. *As of 8/99. Not intended as tax advice. Consult a qualified tax advisor for information regarding current tax implications and how they affect you. Estate Planning Strategies An estate plan is a design for distributing and preserving your estate. A wide variety of estate planning tactics can help minimize taxes and administration costs while accomplishing your goals and objectives. These may include a will, trusts, life insurance, charitable giving, annual gifting and others. The appropriate strategies for you will depend on your individual situation and goals. You have a vision for how your assets should be distributed when you're gone. A financial advisor can provide the expertise you need to meet your planning objectives. Joining a team of professionals to include your attorney and accountant, your advisor will help develop ideas and solutions for your family's financial future. With your plan in place and regular reassessment to keep you on track, your vision can become a reality. Where Do You Go From Here? It's easy to put off developing a detailed estate plan. You are encouraged to take the first step. Meet with your financial advisor to discuss your goals. From there, you will work together to create an effective estate plan. By acting now, you can preserve for your heirs what has taken a lifetime to achieve.
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