Estate planning is the accumulation, the preservation, and the distribution of your assets. It is accomplishing your personal family goals and easing the management of your estate, as well as minimizing taxes.
If you die without a will or trust, the state determines who will be your ultimate heirs. This distribution plan can be found in the intestacy statute of each state. The applicable state can be either the location of your legal residence (personal property), or the state in which your assets are located (real property).
If you die intestate, the transfer of your property is accomplished through a court-supervised proceeding called probate that generally takes a minimum of six months, typically a year or more. These proceedings generally are expensive and time-consuming and tie up your property for several months. Probate can be avoided with proper estate planning.
Probate is the court procedure used to change title to assets from the name of an individual who has passed away into the name of the living beneficiaries. It is also where all creditors of a decedent file claims to collect their debts and where interested parties who have a complaint regarding the deceased can file their complaint (a will contest). Even without a contest, probate can be costly and time-consuming. Probate is a public proceeding.
Probate can be avoided with careful planning. There are a number of different techniques for doing so which can be used alone or in combination.
The government allows every individual a credit against estate taxes. In the year 2018, the Unified Credit is equal to $11,200,000 in assets. This means that, in 2018, estate taxes will not be owed at the time of an individual’s death unless the net value of the estate exceeds $11,200,000 if single and for married couples who do proper planning this amount is $22,400,000. NOTE: unless Congress changes the rules, this amount will sunset in 2026 and return to 2017 levels.
The Internal Revenue Service allows an individual to leave any amount of assets to his or her spouse without taxation. At the death of the surviving spouse, however, all assets in the estate over approximately $11,200,000 will be included in the survivor’s taxable estate; estate taxes on assets above $11,200,000 are taxed at a rate of up to 40 percent.
An outright gift at death qualifies for the unlimited marital deduction for estate taxes and, therefore, there will be no tax paid on the amount left to the surviving spouse. However, the $3,500,000 Applicable Exclusion Amount on the estate of the first deceased spouse is lost when the second spouse dies.
This is a complex question. The answer depends upon individual family circumstances and the size of your estate.
When property is held in joint tenancy with rights of survivorship by two or more people, upon the death of one of the owners, all of his or her interest in the property is transferred immediately to the surviving owners.
Yes, but this unfortunately has several problems associated with it. There is no guarantee that the surviving spouse will have time to set up a trust after the first spouse dies, or, more to the point, will actually get around to setting up a trust, regardless of the amount of time available. This method also loses the $11,200,000 Applicable Exclusion Amount tax advantage, because, like an outright gift, joint tenancy lumps all the assets in one spouse’s estate. In addition, the survivor will not see the increase in basis for the survivor’s interest as would happen in a community property state.
This is a disadvantageous way to plan an estate. The problem with putting your child’s name on the title to your property as a joint tenant is that while it will avoid probate, creditors of the child will be able to reach the joint tenancy property. It may also create a taxable gift when none is expected, and may not be consistent with your ultimately desired distribution.
A power of attorney is a document authorizing someone else (your agent) to act on your behalf (the principal). The purpose of giving someone such a power is to enable the agent to act on your behalf when you cannot act for yourself.
Generally, any individual can create a power of attorney if over 18 years of age, a resident of the state in which it is created, and legally competent. This, however, varies from state to state.
In general, an agent may be anyone who is legally competent and over the age of 18. Usually, it is a family member such as a spouse or a child. More than one person can be named as an agent. However, sometimes naming two or more individuals to act together can prove inconvenient, particularly if a power of attorney must be exercised promptly. A better course is to name one individual as agent and then another as a backup.
A general power of attorney authorizes your agent to do almost everything on your behalf which you could do for yourself. A limited power of attorney authorizes your agent to perform only certain acts specifically listed in the document.
Your agent presents the power to the other party involved in the transaction and signs any necessary documents needed for such transactions on your behalf. Your agent normally signs his or her own name, adding thereafter “Attorney in Fact for Mary Smith”.
Requirements vary from state to state, but generally a simple notarization or signing the power in the presence of witnesses is necessary.
This depends upon what the power says. It can be made effective at the time of signing or it can become effective at the time of your incapacity.
Death revokes a power of attorney. You may also cancel your power of attorney by signing a revocation. The best way to revoke a power of attorney is to destroy all copies. If the power is a non-durable power of attorney it will terminate upon your incapacity, while a durable power of attorney survives your incapacity.