Estate Planning Basics

Whether you are already in a nursing home, assisted living or healthy and living at home, estate planning may be one of the most important things you’ll do during your retirement years.

The purpose of an estate plan is to proactively manage your financial affairs. An effective estate plan will safeguard your assets today and into tomorrow. Assets are everything you own, including bank accounts, investments, your home, retirement plans and other items of value. The goal is to protect and preserve as much of the estate assets as possible. This is done in a variety of ways, depending on what the asset is and how it is owned.

Why Estate Planning?

Without proper planning, individuals can expect to pay the maximum for healthcare, the maximum in taxes and usually couple with large legal fees to settle estates. Most people are not aware of the various ways they can do today to protect themselves or the benefits they may be entitled to.

There are many issues everyone should prepare for including, but not limited to:

• Minimizing Risks to Your Savings & Investments
• Avoiding Probate
• Minimizing Income Taxes
• Reducing/eliminating Taxes on Social Security
• Minimizing/eliminating Estate Taxes
• Minimizing Healthcare Expenses
• Applying for Healthcare Benefits
• Avoid Disinheriting Heirs

A good estate plan should provide for the investment advice, insurance protection, tax advice and ensuring you have the appropriate legal documents. Each case is different and no one solution fits all. An effective estate plan is customized to each individual.

Finally, an estate plan needs to be reviewed periodically in light of the tax law changes, changes in health conditions and family matters. No estate is set in stone forever. 
 

What is probate?

Probate is the manner of administering the property (estate) of a decedent (person whom passed) by a personal representative under the jurisdiction of a county probate court.

Probate is the process by which legal title of property is transferred from the decedent’s estate to his/her beneficiaries. Since you can’t take it with you, the court determines who gets it.

When is probate required?

Generally probate is only necessary when a person dies leaving property in his or her own name.

If a person dies with a Will (”testate”), the probate court determines if the Will is valid, hears any objections to the Will, orders that creditors be paid and supervises the process to assure that property remaining is distributed in accordance with the terms and conditions of the Will.

If a person dies without a Will (”intestate”), the probate court appoints a person to receive all claims against the estate, pay creditors and then distribute all remaining property in accordance with the laws of the state. The major difference between dying testate and dying intestate is that an intestate estate is distributed to beneficiaries in accordance with the distribution plan established by state law; a testate estate (after payment of debts, taxes and costs of administration) is distributed in accordance with the instructions provided by the decedent in his/her Will.

The cost of probate is either set by state law or by practice and custom in your community. The typical cost to probate an estate is in the range of 3% to 7% of the total estate value.

What is a personal representative?

The person who administers the property during the probate process, usually appointed by the court on the basis of being named in the will.

What is a living trust?

A living trust is the name given to a trust created during an individual’s lifetime. It is created for the benefit of the individual during his or her life, and after death allows for the assets to be managed for the benefit of the beneficiaries.
 

What are the advantages to a living trust?

First, probate avoidance is the primary reason to establish a living trust. Second, privacy is an important element because without a trust, the financials of your estate become public record. Third, is estate tax savings. If your estate is more than the amount excluded from federal estate taxes, it could be subject to estate tax when you die. Finally, proper management of assets. A living trust allows you to reduce the risk of inexperienced and unskilled management of property after your death.

What is power of attorney?

A document giving someone authority to act on your behalf in handling your affairs. For example, to sign checks, pay bills, contract medical services or sell property. The authority can be very broad, such as allowing the individual to do anything you can do, or very narrow, such as only allowing them to sell a certain piece of property.
 

What is a durable power of attorney?

Written power of attorney which contains the words “this power of attorney shall become effective upon my disability” or similar words. It must be signed by you before any disability to become valid.
 

Do I need a durable power of attorney even if my spouse and I own everything jointly?

Yes. If you are disabled your spouse can still sign checks and make withdrawals on joint bank accounts, however, your spouse cannot sell anything owned jointly like stocks, your house or a cottage.
 

Can I revoke a durable power of attorney?

As long as you are competent you can revoke your durable power of attorney. The revocation should be in writing and delivered to the agent (the person whom has the power of attorney) and any third parties with who the agent is dealing.
 

What are the advantages of a durable power of attorney?

First, you (not a court) will select your agent. Second, it will give you and your family the peace of mind knowing that you have named someone to handle your affairs. And last, it can save time and the expense of a court proceeding.

Current Estate Tax

IMPORTANT NOTE: The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) was signed into law on June 7, 2001. Under the new law, the federal estate tax continues, but with increasing unified credits and decreasing top estate tax rates, until 2010 when it is repealed only for that year. Without future Congressional action, the 2001 federal estate tax rules will be reinstated in 2011, but with a $1 million exemption equivalent (as scheduled to increase prior to the Act).

To discuss your estate planning needs, contact us or call us (810) 714.9021.