Estate Planning Overview. *What is Estate Planning? ... Planning With Retirement Benefits. *Income Taxation of Qualified Plans ... Planning With Retirement Benefits. *Guidelines for Individual Executors and ... Federal Estate Tax Will Impact Estates in Excess... http://www.basicestateplanning.net Wed, 22 Feb 2012 13:36:19 +0100 FeedCreator 1.7.2 http://www.basicestateplanning.net/general/a-great-in-your-estate-planning.html Grantor-retained annuity trusts (GRATs) are among today's most popular tools for transferring ownership of a closely held business while retaining income or control and reducing federal estate taxes. With a GRAT, a business owner transfers company stock or other income-producing assets to an irrevocable trust that pays the owner a fixed income for a set number of years. At the end of that time--say, three, five or ten years--the property goes to the trust's beneficiaries, perhaps the owner's children. The beauty of a GRAT is that the value of the assets for gift-tax purposes is fair market value at the time of the gift minus the present value of the income that will be paid out to the grantor over the term of the trust. The value may be further discounted if, for example, the shares represent a minority interest or there are restrictions on their sale. Thus, if the trust is engineered carefully, a GRAT can remove a sizable chunk of the business's value (and any future appreciation) from the owner's estate absolutely free of gift and estate taxes. If the owner dies before the end of the trust term, however, the assets go back into his or her estate. For more information on GRATs and other topics related to succession planning, read Passing the Torch: Succession, Retirement, & Estate Planning in Family-Owned Businesses, by Mike Cohn (McGraw-Hill). Cohn, a Phoenix-based family-business consultant, is offering the book to Kiplinger's readers for $15, including postage. Call 800-422-3883 and ask for Department K. articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/basic-estate-planning.html Even if your will leaves everything to your kids, a second spouse can claim what's known as an "elective share" of your estate--typically a third. (If you don't have a will, read the story on page 94.) The easiest way to avoid trouble is with a prenuptial agreement in which your spouse-to-be gives up any claim to a share. After you're married, it takes more lawyering to disinherit a spouse. Some unmarried couples should take precautions, too. In the jurisdictions that still recognize "common law marriage" (see map on p. 91), a partner could grab an elective share as a common law spouse. Usually, only long-standing heterosexual couples who hold themselves out as married--say, by filing joint tax returns or using the same last name--will be considered to have entered a common law marriage. But head off problems by signing a joint statement that you don't intend to have one. What if you do want to leave a third or more of your assets to your new partner? Tie the knot. You can leave any amount to a spouse (who is a U.S. citizen) without having the bequest count against the (currently) $2-million-per-person exemption from federal estate tax. Similarly, bequests to a spouse don't count against the exemptions (which are usually smaller than $2 million) in those states that still impose estate taxes. If you've married, you can devote your entire exemption to sheltering from tax what goes to the kids. articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/estate-planning-on-the-cheap.html You could use software to write your own will, but here's a safer alternative Yes, it can be painful to pay for estate planning. Lawyers charge a lot. The benefits of a plan are delayed, and you don't live to see them anyway. Who wants to spend big bucks on a plan when times are so tough and the federal estate tax is in flux? Fewer and fewer Americans, it seems. Only 35% had a will in 2009, and only about half had any estate-planning documents at all--a will, a trust or a financial or medical power of attorney, according to a survey by Lawyers.com. That's a drop from previous years. What about do-it-yourself planning? In theory, you can use books or software and websites that spew out documents for free or for a fraction of what lawyers charge. There's a decent argument that doing something on the cheap is better than doing nothing. If you die without a will ("intestate," in legalese), state law will determine how most of your belongings are distributed, and it may not be in the way you'd want. If you're a single or surviving parent who dies without a will, the court will decide who should raise your minor children. And certainly, before you're wheeled into the operating room, it's better to have signed living-will and medical power-of-attorney forms--even if you haven't consulted a lawyer. The trouble with do-it-yourself planning, however, is that even if your situation seems simple, there are many oddball things a layman wouldn't think of that can go wrong, especially with a will. These mistakes can end up costing your heirs a lot more than you saved in legal fees. Example: Fort Lauderdale lawyer Joanne Fanizza recently handled the estate of an elderly Florida woman who had a guy (not a lawyer) in her condo... articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/estate-planning-tools.html The decisions you make about distributing your assets when you die are deeply personal. But to make those decisions effective, you have to use the right tools--wills, which have to go through probate, and trusts, which do not. Here are several of the most common tools; all require professional advice. REVOCABLE OR LIVING TRUST Gives fiduciary control over your assets to a trustee for your benefit or that of another beneficiary. As long as you are alive, you can change or cancel a revocable trust; once you die it becomes irrevocable. IRREVOCABLE TRUST Once you set up an irrevocable trust, the assets in it are no longer yours, and typically you can't make changes without the beneficiary's consent. But the appreciated assets in the trust aren't subject to estate taxes. SUPPLEMENTAL- OR SPECIAL-NEEDS TRUST Typically set up to provide benefits for a disabled person while maintaining his or her eligibility for government assistance. The key here is that no assets pass directly to the beneficiary. The trustee--who should not be the beneficiary--can distribute funds from the trust to pay for things that government programs will not cover. INSURANCE TRUST This irrevocable trust purchases a life insurance policy for you, thus removing it from your estate--and from estate taxes--but allowing you to maintain legal control over how the proceeds can be spent. ETHICAL WILL An essay or letter that sets out your thoughts and wishes about how you want your heirs to live. It's not legally binding but can help your heirs understand your intentions in dividing your estate. articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/estate-planning.html For years, Bud and Pat Rushing ignored the need for estate planning. "You don't want to think or talk about these things because they aren't pleasant," says Pat. "And all the legalese seemed so complicated." Their lives were already filled with complications. Bud, 69, a retired insurance salesman, and Pat, 69, a clerk, had been caring for their daughter Mary at home since 1986, when encephalitis left her unable to work steadily or live by herself. Mary qualified for Medicare and $700 in monthly Social Security disability income, and the Rushings felt that they could support her. Then Bud had a stroke. "The hospital asked us about a living will, and we didn't have one," says Pat. "We just had a basic will. We saw that we had to do something to protect our assets and protect Mary." Once Bud was home, the couple contacted Mary Anne Ehlert, a financial planner who specializes in helping families of the disabled. They hired a lawyer to revamp their will and set up a living will, a durable power of attorney and health-care proxies. Ehlert helped with the Medicaid application for Mary and advised them to set up a special-needs trust. After they die, the money they're saving from Mary's income plus any inheritance will go into the trust. Mary's brother Dan will administer the trust and make decisions on her behalf. The cost of the wills and trust: $2,800. Says Pat: "It felt very freeing." articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/limited-liability-companies-and-estate-planning.html estate planning With the widespread adoption of limited liability company acts by state legislatures, limited liability companies (LLC) have become the business organization of choice for small closely held businesses. An LLC also provides tax advantages to transfer wealth from one generation to another while allowing the donor to maintain control over over the assets until death. An LLC consists of members and managers. It can be structured like a limited partnership, with the members being passive investors and the managers actively managing the company. The concepts of wealth transfer are the same for LLCs and limited partnerships: The generation transferring the wealth (the parents) forms an LLC, making themselves both managers and members. The generation receiving the wealth (the children) are made members of the company. Initially, the parents hold all of the membership interest in the company along with the assets it represents. Over time, the membership interest is gifted to the children, within allowable gift tax amounts, and the parents retain the control of the company and its assets as the managers. LLCs can be structured to allow flexibility to accommodate income distribution issues and restrictions on transfers of interests. IRC section 2036. The driving force behind the estate planning methods described above is IRC section 2036. IRC section 2036 states that whenever property is transferred (except in an arm's-length transaction for fair market value) and the transferee retains the right to enjoyment (use) or the income, the value of the property transferred is included in the estate of the transferee. Furthermore, if the transferee retains the right to control who will use the property or who will receive income produced by the property, the property will be included in the transferee's estate. articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/now-is-time-for-long-term-planning.html It's true: you are just about out of time. However, according to the Financial Planning Association, Denver, Colo., it would be wise not to focus on the impending tax deadline so much as your overall retirement strategy. Here are some key moves to get your retirement in shape on a year-round basis. Start saving. You have until April 17 to make a 2006 tax year contribution to a 401(k) Plan or IRA. If you were under the age of 50 during all of 2006, the contribution limit is $15,000; if you turned 50 by Dec. 31, 2006, the amount is $20,000. Also, income limits rose for making contributions to a Roth IRA. In 2007, singles now can deposit to a Roth if their income is between $99,000 and $114,000, while joint fliers can earn between $156,000 and $166,000. Fund the deadline. If you were under the age of 50 by year-end 2006, you can contribute up to $4,000 to your individual retirement account by April 17. If you were over 50, you can add $1,000 to that amount. That deadline goes for traditional IRAs, SEP-IRAs, Keogh, and Roth IRAs. Be aware of new 401(k) transfer rules. Thanks to pension legislation passed in 2006, a child or nonspouse who inherits the money in a qualified disbursement can transfer it directly into an IRA and stretch out the distributions over a number of years at a considerably smaller tax bite. Change withholding if necessary. There is no reason to be paying more taxes than necessary or struggling to pay your tax bill in April. Moreover, if you get a big tax refund this year, do not blow it; sock it away. You even can authorize the refund to be deposited directly into an IRA account. Get beneficiaries in order. Each year, it makes sense to determine whether... articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/retiree-havens-go-on-sale.html EVEN IF YOU'RE a decade or more away from quitting time, you may be thinking about buying a retirement home right now. The prices for condos in popular retirement areas like Napa, Calif., and Naples, Fla., have come down 44% or more since the boom, substantially more than the average 32% that home prices have fallen nationwide, according to the latest data from Fiserv. And mortgage rates recently hit record lows once again. For baby boomers in particular, "Many realize that they'll never see this scenario again in their lifetimes," says Jim Gillespie, CEO of Coldwell Banker Real Estate. If you vacation in the same place several times a year and can pay for some or all of a property in cash, owning might not cost much more than hotel stays, especially as you get closer to chucking your briefcase and use the place more frequently. Still, no matter the price, buying now isn't a no-brainer. The costs of owning two properties can be greater than you'd expect, even if you plan to rent one out most of the time. Before you shop, answer the following questions. CAN YOU TRULY AFFORD IT? You should be socking away the max in your 401(k)s and IRAs, particularly during your prime earning years. If a second home makes that impossible, don't buy, says Grand Rapids financial planner Ryan Sheffer. Moreover, the true cost of home ownership doesn't end with the mortgage payment, taxes, and insurance. You'll probably spend several thousand dollars a year on everything from regular lawn care to ongoing utility bills. Rental income can offset the cost of ownership, of course, but bear in mind that the average rental property has a tenant for fewer than 20 weeks a year, according to rental site Homeaway.com. Plus, unless your second home is near your primary house,... articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/seven-good-reasons-credit-shelter-trusts-remain-relevant.html • New provisions of the Tax Reform Act of 2010 allow a spouse to pass along any unused portion of a $5 million estate and gift tax exclusion to the surviving spouse. At first glance, this "portability" of the exclusion might seem to replace the traditional method of accomplishing the same goal by funding a credit shelter trust with an exclusion amount. • However, for at least seven reasons, credit shelter trusts still have a role in estate planning, and advisers should rarely, if ever, rely exclusively upon portability. • For one, portability is currently only a temporary provision, set to sunset at the end of 2012. For another, a number of states also impose an estate and/or gift tax. • Although the basic exclusion amount is now indexed for inflation, a "deceased spousal unused exclusion amount" is not. If the surviving spouse long outlives the other, inflation could significantly diminish the unused exclusion amount as opposed to using a trust, where trustee administration that includes sound, moderate-risk investments could significantly increase the value of assets passing free of estate tax. • An executor could fail to make the timely election required for portability, which also requires filing an estate tax return on behalf of the deceased spouse. This may otherwise be an unnecessary expense for estates below the exclusion amount. In addition, a shelter trust may still be indicated with respect to the generation-skipping transfer tax, whose exclusion amount is not portable. • Portability can be complicated by multiple marriages and can leave assets vulnerable. A trust can protect those assets from liability claims and dissipation. articles - General Tue, 27 Dec 2011 21:44:23 +0100 http://www.basicestateplanning.net/general/size-up-your-estate-and-do-some-tax-planning.html Barring any last-minute congressional moves, the estate tax is on the verge of making a big comeback. After a year in which estates of any size escaped federal tax, those of people who die in 2011 will currently be allowed an exemption of only $1 million, down from $3.5 million in 2009. Holdings beyond that level will be taxed at rates of up to 55 percent or, in rare cases, 60 percent. Tax experts say they expect Congress to settle on a rate between 35 and 45 percent, and that the $1 million exemption will rise to closer to the 2009 level. Meanwhile, anyone with assets nearing or in the danger zone should probably do some planning. How best to make sure your wealth ends up mostly in the hands of your heirs? Lifetime gifts. One simple option is to give money to family members while you can still enjoy watching them use it. In addition to letting you give away $1 million tax free over your lifetime, the law allows yearly handouts of $13,000 to any number of individuals. And in the case of gifts for education or healthcare, there's no limit on the tax-free amount as long as it goes directly to the providers. "Giving is the simplest estate-planning technique," says Deborah Jacobs, author of Estate Planning Smarts. But it's really appropriate only for people who have already stashed away enough to comfortably fund retirement. Sticking $13,000 per year into 529 plans to pay for future college costs can be a better idea than just handing over the cash, says Jacobs. That's because you, as owner, still control the money (and can pull it out if necessary), but it doesn't count as part of your estate. For grandparents whose adult children tend to live large, this method helps guarantee that... articles - General Tue, 27 Dec 2011 21:44:23 +0100