The Tax Club Report

Estate planning is more than simply having a will. It is a continuous planning process done to alleviate the financial impact of your death on those you leave behind. By spending just a few hours and dollars now, you can save your loved ones or beneficiaries from paying as much as a 55% estate tax. But a well-constructed estate plan may not only reduce the tax bill, but also help your loved ones understand, resolve and prepare for many of the issues that arise when settling an estate. We’ll show you where to start. 

Dying without a Will
Dying without a will is known as dying intestate. If this were to happen in the U.S., intestate succession laws would come into play, and your relatives would have to go through probate to claim ownership of assets, perhaps even fight over assets. The state would determine how your property passes to your heirs. If no heirs fit the state’s formula, your assets may become property of the state. A will can help you avoid the pitfalls of dying intestate; however, even if you have a will, your assets will still be subjected to the timely and costly probate process (court involvement).

How a Will Can Help
A will primarily allows you to control the distribution of your assets and state your final wishes.

One very important advantage of a will is that it allows you to recommend a guardian to care for your children or other dependent beneficiaries in the event of your death. Because this is an overwhelming responsibility, you should select your guardian(s) carefully and also obtain their consent before listing them in your will. Although the final decision concerning guardianship is made by the court, the courts give a lot of weight to the parent’s decision in the will.

Other important items on your will are clauses clarifying the will and its purpose. In the exordium clause, for instance, you state your name and residence, and officially declare the document a will. Be careful to note in this clause that the will supersedes all previous wills, making them null and void. In the will you should also name the executor/administrator of your estate and how you would like that person to distribute your assets, including how all your debts, taxes and funeral expenses are to be paid. To avoid family disputes, you may want to add a non-contestability clause, which states that if any beneficiary contests the will, his or her share becomes null and void. Of course, a non-contestability clause is not suitable for every family’s circumstance. 
How to Start on Your Estate Planning
Now that you understand the importance of having a will, here’s a list of steps that gives an overview of the estate planning process:

• Make a list of all your assets and liabilities.
• Open a family discussion of who should be the guardian for your children.
• Check and update your current beneficiaries (those designated for IRAs, life insurance, etc).
• Review the current federal estate tax exemption limits (discussed below).
• Determine the distribution of your assets upon your death (family, charity, etc).
• Discuss your funeral arrangements with your spouse or family.
• Seek the assistance of a certified estate-planning attorney.

(For more on designating IRA beneficiaries, see Who Is The Beneficiary Of Your Account?)

A simple will may cover all your estate planning needs if the value of your estate falls materially below the estate-tax exclusion amount. The federal estate tax is an excise tax levied on the transfer of a person’s property that exceeds a certain amount at the time of that individual’s death. If your estate is worth more than the tax exclusion amount, the tax can be hefty. As such, you really need to take a serious look at your personal situation, and, if your estate is more than the tax exclusion, look into more estate-reduction and planning techniques, which will help your beneficiaries avoid the estate tax (we discuss these techniques further below). Keep in mind that direct transfers to your spouse are not taxed – these assets are not taxed until s/he dies (this is called a marital deduction).

Read the full article: http://www.investopedia.com/articles/pf/05/062005.asp#ixzz1Oo3YYIoS

 

This entry was posted on Thursday, June 9th, 2011 at 1:51 pm and is filed under Tax News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.