Estate Planning

ESTATE PLANNING© 2000
By:  J. Kenneth Harris, Esq., LLM    Harris Law Offices

An estate plan is not a static document. Just as technology and the Internet have had profound effects on our daily lives, changes in our family situation, wealth, and in the law necessitate the continuing review and update of a family's estate plan.

Why Review

Just because you have a will does not mean that you addressed the issue of estate planning. As time passes the persons you want to receive your property at your death may change. Also, situations may change with respect to the selection of executors, trustees, and guardians for minor children. It is important that the plan for the distribution of your assets and the persons responsible for overseeing that process be updated regularly to insure that previous decisions and appointments are still appropriate. This review process should also include checking beneficiary designations for insurance policies, retirement accounts and qualified retirement plans.

Planning to Reduce Estate Taxes

Recent newspaper articles have highlighted the devastating effect estate taxes can have on a family. Currently, assets owned by a decedent at their death are subject to a federal estate tax starting at a base rate of 37%, for estates over $675,000, and increasing to 55% for estates over $3,000,000. It may seem that with an exclusion for the first $675,000 in assets no planning would be required for most people.However, in calculating the $675,000, the face value of life insurance policies owned by and insuring the decedent are included in the taxable estate, as are the values of retirement benefits. Consequently, people may discover they are "wealthy", and subject to the estate tax, without having made the appropriate planning choices. With proper planning the $675,000 exclusion, increasing to $1,000,000 in 2006, of both spouses can be combined so that up to $2,000,000 can pass to your heirs without paying any federal estate tax. This is accomplished by having properly drafted wills and/or trusts and planning so the family assets are owned in the most tax efficient fashion.

Ownership of Assets

To effectively use the available exclusion amount, ownership of assets must often be shifted from joint ownership to being owned by one or the other spouse. Additionally, by transferring ownership of life insurance to an irrevocable life insurance trust, with family members as the beneficiaries, the proceeds of the life insurance proceeds can be protected from the federal estate tax in both estates. Another method for reducing estate taxes is to make present gifts of the family assets. Every individual is entitled to give away $10,000 annually to any person without incurring a gift tax and husbands and wives can combine gifts so they can give $20,000 per year to each child or other beneficiary. These annual gifts can transfer a significant amount of wealth to younger family members without the imposition of either gift or estate taxes.

In some cases, transferring assets to a revocable trust or "living trust" may provide management benefits and, in some jurisdictions, reduce the costs associated with settling an estate.

Summary

Planning your estate gives you the ability to insure that your assets pass to those of your heirs that you select. Also, planning will help maximize the value that passes to your heirs while minimizing the federal estate tax to be paid. Consultation with a qualified estate planning professional is essential for our family's financial well being. If you would like additional information regarding any of the suggestions mentioned above, please contact us at jkharris@BellAtlantic.net.

"For an update on changes in the estate/gift law see the next page."

[Next Page]