Your financial security tomorrow is determined largely by the decisions you make today. Smart ways of investing will help you grow your money for the future. What about protecting your money from federal income taxes and even estate taxes!
Invest in a solution to grow your assets without current income taxes and efficiently transfer those assets directly to your family. A solution specifically designed to help provide the necessary liquidity, payment of estate taxes, and immediate cash flow your heirs will need to maintain current lifestyles.
SIX QUESTIONS ABOUT YOUR WILL
What would happen to your family and your property if you suddenly died tomorrow? That’s a nasty and unsettling question, perhaps even morbid. But it’s one that many people are taking more seriously these days, as stories of the surviving families of those who died on September 11 are publicized. Estate planning is the process of providing and answer to that unsettling question.
First, you need a will. If you don’t have one yet, please attend to this basic financial duty right away. If you do have one, don’t take it for granted. Wills need to be reviewed periodically, responding to changing circumstances and wealth composition. The following questions should help you with planning or reviewing your testamentary plans.
- Will death taxes be an issue for your estate?
The federal estate tax is aimed primarily at the largest estates-see “The falling burden of federal death taxes” on page 2 for details. What’s more, those taxes generally do not apply to property received by a surviving spouse, without regard to the dollar value of the property. With some basic estate planning, federal estate taxes can be virtually eliminated for most married couples.
Still, many people underestimate just how large an estate they have, and what their potential tax exposure is. Death taxes may apply to retirement money, to jointly owned property and to insurance proceeds, as well as to assets owned outright by an individual. You might be vulnerable, without realizing it.
And when reviewing this issue, don’t overlook the impact of state death taxes, especially on transfers to someone other than a surviving spouse.
- Has a guardian been named for the children?
In the event of an accident that takes the lives of both parents, a will can provide for a guardian to take care of minor children. Instructions should be provided for handling their inheritances in this situation.
- Have you moved?
State laws regarding wills vary. If your will was drafted while you lived in another state, it’s a good idea to have it reviewed by an estate planning attorney in your new home state.
- Have you come into money?
The composition of your wealth will change over the course of your life. Any sizable increase in your net worth probably calls for new will planning, and possibly new tax strategies.
- Are beneficiaries properly accounted for?
Births and deaths can sometimes alter the effectiveness of will provisions.
Lawyers often try to allow for such contingencies by vague language (“and to my nieces and nephews…”), but you may have added thoughts after the contingency becomes a fact.
- Who will settle your estate?
The job of executor of an estate (or to use the legal parlance in many states, the personal representative) is not merely an honor, nor should it be thought of as part of the inheritance. For a brief outline of an executor’s duties, see “What does an executor do, exactly?”
Providing guidance is the ultimate purpose of a good estate plan. Does your chosen executor know where all your important papers are? Is there a list of your bank and brokerage accounts, an inventory of property that you own? The more good information that you can provide, the less financial disruption for your heirs will be caused by your death.
What does an executor do, exactly?
The job of estate settlement is more complicated than most people realize. This list is no more than an introduction to the scope of an executor’s duties:
- Arrange for the probate of the will to establish its validity
- Obtain authorization to actas executor
- Give notice to the estate’s creditors
- Take custody of valuables
- Protect assets, obtaining insurance as appropriate
- Obtain entry to any safe deposit boxes
- Collect money owed to the estate
- Compile a complete inventory of estate assets
- Obtain an accurate valuation of every asset
- Keep detailed financial records
- Determine validity of creditors’ claims
- Decide what to sell to raise cash
- File decedent’s final income tax return
- File income tax returns for the estate, file federal estate tax return, due nine months from the date of death
- File state inheritance or estate tax returns
- Distribute assets to beneficiaries or trusts, in accordance with the terms of the will
- Prepare a full report of estate stewardship in the form of a detailed final accounting statement
The FALLING burden of federal death taxes
More and more families can worry less and less about paying federal estate taxes in the coming years. In 2003 the amount exempt from federal estate and gift tax is $1 million per taxpayer, and that figure will grow through this decade. With some basic estate planning, a married couple can double the value of this tax exemption.
Current law provides for the repeal of all federal death taxes in 2010, followed by a reinstatement in 2011 of the death tax regime that existed before this year. Those developments are going to be keeping estate planners very busy for years to come.
Year Estate Tax Exemption Equivalent
2004-2005 $1.5 million
2006-2008 $2.0 million
2009 $3.5 million
2010 No federal death tax
2011 $1 million
Source: Merrill Anderson
* Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither PrimeVest, nor any of its representatives may give legal or tax advice.
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