Nine Estate Planning Guidelines


You may want to consider these guidelines as you plan your estate:


1. Prepare a Will. Be sure it keeps pace with changes in your own personal circumstances and adjustments in tax laws. Marriage, divorce, birth, a move to another state or change in your finances should signal an immediate review and possible updating of your will.


2. Use Your Estate Tax Exclusion. The IRS allows U.S. citizens to pass the first $2 million of assets in 2006-2008 (increasing to $3.5 million in 2009) to their beneficiaries, free of federal estate tax. Be sure to plan properly so that both spouses use their tax exclusions.


3. Title Assets to Avoid Probate. Holding property in joint tenancy with the right of survivorship is a simple way to avoid probate. Joint tenancy with the right of survivorship is a form of property ownership by two or more persons. When one of the joint tenant owners dies, his/her interest in the property automatically passes to the surviving owner(s).


4. Monitor Retirement Plan Assets. If you plan to gift your IRA or qualified plan to heirs at death, the account could lose up to two-thirds of its value to federal estate and income taxes. Taking distributions from your IRA or qualified plan and purchasing your life insurance policy held in an irrevocable life insurance trust (ILIT) could be a consideration. That way your heirs receive the insurance death benefit free of estate and income taxes (if the UT and plan are properly designed), instead of a fraction os your IRA or qualified plan.


5. Gift Away What You Don’t Need. Lifetime gifts to family members or others can reduce your potential estate tax liability by removing the gifted assets and any future income and appreciation on those assets from your estate. You are entitled to transfer up to $12,000 per person each year without incurring any gift tax or reducing your lifetime gift tax exclusion amount. (Spouses together may gift up to $24,000.)


6. Keep Enough Assets Liquid to satisfy Estate Taxes. Generally, the IRS requires that any federal estate tax liability be satisfied within nine months of the date of death and that the payment must be in cash. There are four typical sources from which funds can be obtained: cash reserves, loans, and liquidation of assets or life insurance proceeds.


7. Hold Life Insurance in Trust. I properly owned by a trust or third party, life insurance proceeds may be income tax free to the recipient and not subject to estate tax. However, the proceeds will be subject to tax if you (as the insured) own or have the rights to the policy. Purchasing the policy within an irrevocable trust may prevent life insurance proceeds from increasing your estate tax liability.


8. Know What You Have and Where You Have it. Keep copies of your important papers and make sure that appropriate parties know where these papers are kept.


9. Meet With Your Financial Advisor. Finally, discuss your estate planning objectives, concerns and fears with your financial advisor, as well as your tax and legal advisors, so that you can develop a plan for effectively transferring wealth to your heirs.