Estate Planning

Purposes of Estate Planning

Many Variations to an Estate Plan

Estate Planning requires careful documentation which is custom prepared.People engage in estate planning to establish a comprehensive plan to cover what happens to their money and property in the event of disability or death. There are many variations to an estate plan and each one is custom tailored to your personal situation.  A typical estate plan will (i) be changeable (revocable); (ii) will keep your estate out of the probate court system; (iii) will keep your affairs private; (iv) will have a definite plan as to who receives your money and property on your passing; (v) will provide for your surviving spouse; (vi) will be set up to save estate and gift taxes; (vi) will minimize property tax increases on your passing and (vii) consider income tax implications of transfers of money and property.

A well thought out estate plan can protect your family from many of the uncertainties of life and make things a lot easier for you and for them in the future.

Typical Estate Planning Documentation

Here is a list of the various documents commonly used in estate planning.  Most of these documents are custom prepared to suit your individual family situation.

Basic estate plan
♦ Will Final instructions as to who gets what upon death.
♦ Revocable (living) Trust A legal entity with instructions on how to handle everything before and after death.  Because it is revocable it can be changed at any time.
♦ Durable Power of Attorney Allows somebody else to legally sign for you even if you are incapacitated.
♦ Health Care Directive Authorizes others to make health care decisions for you if youare unable to do so.
♦ Property transfer documents Once a trust is established, deeds and other transfer documents are required to actually put your property and money into the trust.
♦ Bank and brokerage account Changes that will be needed Since a trust is a legal entity, it needs bank accounts in the trust name and whomever establishes the trust will need to go to the bank orbrokerage company to sign new signature cards.
♦ Pension & life insurance changes Revised beneficiary designation forms will need to be signed for the trust to control what happens to the proceeds of these items.
Optional additional items
♦ Life insurance trust A permanent trust to hold life insurance policies to keep it out of your estate for tax purposes so your heirs will get 100% of the benefit.
♦ Special needs trust This is used where there are children with disabilities to insure that there are special instructions for their care
♦ Family limited partnership A separate entity to hold property or business interests and provide a mechanism to transfer percentages to the next generation in increments to escape estate and gift taxes.  Also used for asset protection.
♦ Limited liability company A separate entity typically set up to hold real property or business interests to protect your personal estate from liabilities of the property or business.

Taxation issues

The tax issues involving estate planning and trusts that must be determined in each  situation involved are:

  1. Will the money & property in the trust be subject to federal estate taxes on the death of the Trustors?
  2. Will the income generated by the trust (ordinary income, portfolio income, or capital gains) be taxed on the Trustor’s personal income tax returns, or will the trust pay the tax, or will the beneficiaries pay the tax?
  3. Will there be gift taxes on the transfers into the trust?
  4. Will there be an increase in the property taxes for property placed into a trust?
  5. What will happen to the income tax basis of properties and assets if transferred into a trust as compared to giving them directly to heirs before death?
  6. Who will be paying income taxes on income generated by a trust or estate?

Control issues

If there is a living trust, the trust document establishing the trust names the persons  who control the trust monies and properties and gives detailed instructions on how much, when, and under what circumstances money is paid out of the trust to the beneficiaries.  The Trustee of the trust administers these instructions.  However, if the trust is revocable, the Trustor can make changes in these instructions and/or revoke the trust altogether to prevent the instructions from being carried out if the Trustor changes his mind.  On the other hand, if a trust is irrevocable, by definition it cannot be changed and the Trustor cannot make changes, with some minor exceptions.  For example, the Trustor may retain the right to replace the Trustee if he doesn’t like what the Trustee is doing.  However, when the Trustor retains rights, some of the income or estate tax benefits of a trust might be lost or diminished.

CALL  (949) 851-1771  to speak with Lawyer  David L. Crockett

Probate avoidance

To avoid probate the your assets would need to be placed into a living trust.  Money and property placed into a trust before your death generally will not be subject to probate court proceedings.  Probate court proceedings have mandatory attorney fees which for example on  a $500,000 estate would be $11,150 and on a $1,000,000 estate would be $18,000.   This is one reason for the  popularity of  living trusts.   A living  trust enables  you  to  set  and organize  the  scheme  of distribution of your property before death and to see how well the trust and Trustee work.

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