to Think About Estate Planning
When you hear the
term "estate planning," you probably think of estate taxes or
think that estate planning is only for older people or those with lots
of assets. Estate planning is about estate taxes and quite a bit more.
It also includes what would happen to you if you could not make financial
and medical decisions and what would happen to your loved ones if you
If you do not have
a lot of assets, you may not care about estate taxes now. But if you are
financially successful during your life, you may care a great deal about
them down the road. In addition, you can expect to read about estate taxes
as Congress deals with any changes to our tax laws.
Basics of Estate
The federal government levies a tax, payable by your estate, with rates
up to 40% on the largest estates. The tax is charged against the value
of the estate after allowable deductions are taken. Allowable deductions
include burial expenses, existing debts, charitable contributions and
accrued taxes. In addition, any assets left to a surviving spouse are
not included in the taxable estate. After the estate tax is calculated,
there is a credit against that tax. The result is that many estates pay
no tax. The amount of the credit is increasing and below is a chart indicating
the size of taxable estates that will be subject to tax after the credit.
Estate size where taxation starts
Top estate tax rate
Indexed for inflation
Issues Other Than Taxes
In many families, death and money are almost forbidden subjects. Yet some
frank discussions with your parents (or children) can prepare everyone
for the unexpected. Be sure key family members can find important documents
and are aware of any desired medical treatment options.
Guardians for surviving
children. Your will dictates how assets are distributed from your
estate and can be used to designate legal guardians for dependents. You,
not the courts, should make these decisions. Your will also names the
person (executor) to oversee the estate until all assets are distributed
and officially closed. Choose someone that is capable of understanding
and carrying out your wishes.
These documents are invoked if you are not capable of making health care
decisions for yourself. A durable power of attorney for health care gives
another person the ability to make medical decisions and a living will
tells your family and medical personnel how you are to be treated if you
become terminally ill. It also states your wishes about being placed on
life support. Some states may separate forms for each.
Durable power of
attorney for finances. This document enables another person to handle
your finances and your investments if you become incapacitated and are
unable to make your own decisions. Without this power of attorney, it
may be necessary to go to court frequently just to handle routine transactions.
Choose someone that is capable and knowledgeable such as an adult child,
sibling or trusted friend. If you do not have someone like that, consider
your attorney or accountant.
accounts. Carefully choose the beneficiary of your retirement plans,
including IRAs. In most cases, the person receiving your retirement plan
assets is determined by the beneficiary form you sign and not your will.
insurance trusts. Life insurance proceeds are not subject to income
taxes but may result in estate taxes if your estate is the beneficiary.
If you have life insurance and your assets are approaching the level where
estate taxes may be assessed, speak with a qualified attorney to learn
how a life insurance trust may help keep proceeds out of your estate and
taxes to a minimum.
planning checkups. Estate plans should be reviewed regularly. Many
estate attorneys suggest a review every three or four years. If your situation
changes (divorce, death of a spouse, birth of children or grandchildren,
changes in wealth status), you may want to review your plan more often.
Moving to another state should also prompt estate plan review.
Use an expert.
The estate laws are complex and the consequences of being inadequately
prepared are significant. While you may want to do some investigation
on your own, use a qualified attorney for your estate planning needs.