Smart Strategies For Estate Planning


Creating an effective estate plan can occasionally feel daunting, but it doesn’t have to be. Taking a few simple steps today can help ensure that you and your family gain the maximum benefit from your hard work and hard-earned assets. By making the right estate-planning decisions in your working years, you’re more likely to enjoy a successful retirement in the future while protecting your assets for generations to come. Here are some basic strategies for starting, fine-tuning or updating your estate plan.

1) Create a Will
A surprising number of successful people-including doctors, executives and business owners-lack a basic will. Others forget to sign their wills or update them regularly. Make sure you have a basic will and that your document is up to date, has been signed and notarized. In addition, make sure that your executor has a copy that can be easily found in the event of your death. Without a signed will, your estate will be settled according to state laws in your state of residence, which may or may not reflect your personal wishes.

2) Write a Letter of Instruction for Personal Belongings
A will typically covers major assets, such as financial accounts and real property. It’s also a good idea to write a letter of instruction about smaller personal belongings, such as jewelry, furniture or family heirlooms San Diego estate planning lawyer. A letter of instruction isn’t necessarily legally binding in all states, but it can help your family better understand your wishes and resolve potential disagreements among surviving family members.

3) Establish a Living Trust
A living trust provides several important benefits. First, if you become incapacitated for any reason, having a living trust in place allows you to retain full control of your estate. Without a living trust, your state of residence could potentially appoint a guardian for you according to state law if aren’t able to make decisions for yourself. Second, a living trust offers privacy. Wills are public documents once they have been filed with your state of residence. In contrast, the contents of a living trust can always remain private and out of the public domain. Finally, a living trust can help your estate avoid probate, saving your heirs time, money and unnecessary hassles after your death.

4) Assume the Estate Tax Is Here to Stay
No one can predict with absolute certainty what Congress will do with the estate tax. However, many industry experts believe that the estate tax is here to stay. If Congress takes no action in 2010, the standard estate-tax exemption will revert to $1 million per individual in 2011 and beyond. Building the estate tax into your legacy planning will help you heirs keep more of what they are legally entitled to.

5) Don’t Leave Everything to Your Spouse
If the estate tax exemption reverts to $1 million per individual in 2011 and beyond, it’s a big mistake to leave everything you own to your spouse. Here’s why. You and your spouse can each leave $1 million to your heirs free from the estate tax, creating a combined $2 million exemption for you as a couple. However, if you if leave everything to your spouse, your entire estate will eventually be held in one person’s name, so your effective estate tax exemption as a couple is only $1 million. Your wealth manager can help you develop strategies to maximize your estate tax exemption as a married couple, which may include an A/B trust, which typically consists of an “A” trust (sometimes known as a marital trust) and a “B” trust (sometimes known as a bypass trust).

6) Pay Special Attention to Titles in Community Property States
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In community property states, the most advantageous way to title assets for married couples is typically as community property with rights of survivorship. The advantage is that when one spouse dies, the other will get a 100% step-up in cost basis. In contrast, if your assets are jointly titled in a community property state and one spouse dies, the surviving spouse only gets a 50% step-up in cost basis, which can increase the surviving spouse’s capital gains tax liability down the road when it comes time to sell your house or other assets.

7) Make Annual Gifts to Family Members
Rather than leaving your entire legacy when you die, consider making some gifts now to family members, while you’re still living. In 2010, you can gift up to $13,000 a year to as many people as you want. As a married couple, you and your spouse can gift up to $26,000 to the same individual if you both make the gift. This is a great way to get money out of your estate while helping a child make a down payment on a house, funding a grandchild’s education or supporting a family member in need.

8) Enjoy the Tax Benefits of Charitable Donations
Fulfilling your philanthropic goals can offer many tax benefits. Today, there are a number of tax-advantaged charitable vehicles designed to help individuals reduce the value of their taxable estate. These may include donor advised funds, charitable lead trusts and charitable remainder trusts. Charitable donations are also often a great way to remove highly appreciated assets from your estate, reducing your exposure to both the estate tax and long-term capital gains taxes. Highly appreciated assets could include both securities and real property.

9) Keep Life Insurance Outside of Your Taxable Estate
Life insurance benefits can sometimes unintentionally expose your heirs to the estate tax. To prevent this from happening, consider buying your life insurance policy within an irrevocable life insurance trust-this will keep your life insurance benefits entirely outside of your estate. By doing so, you can help ensure that your life insurance benefits are both income-tax free and estate-tax free for your beneficiaries.

10) Review Your Estate Plan Regularly
Once you create your estate plan, review it with your wealth manager, tax professional and/or attorney every 3 to 5 years. It’s crucial to keep up with changes in tax laws, making sure that your plan reflects both your wishes and any new tax laws.

If you’re feeling overwhelmed by estate planning, consider tackling this list of suggestions above one item at a time. Set a goal of completing a few tasks each quarter. Keep in mind that this list is only a starting point. There may be other estate planning strategies that your wealth manager will recommend based on your personal needs and goals. Asking for help and guidance from your wealth manager and other trusted advisors can help streamline the estate planning process and improve your chances of leaving the legacy you imagine for future generations.

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