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Taxes certainly are higher
for large estates but they are not the only reason for estate
planning. Here are seven
more reasons, some which may
be just as important to you:
1. To plan who receives
what size share of your assets.
2. To decide how and when your beneficiaries will receive
their inheritance or income.
3. To decide who will manage your estate (executor, trustee,
etc.) and be responsible for
distribution of the assets.
4. To reduce estate administrative expenses and delays.
5. To select a guardian for your children.
6. To provide financial management for funds that may pass
to grandchildren.
7. To provide for the orderly continuance or sale of a
family business or real estate investment property.
If
you do not have a plan, state laws will determine who inherits
your assets and when they receive them. The court will appoint
a guardian for your children and the administrator for your
estate.
Your estate
could wind up paying substantial – and unnecessary – taxes
and administrative costs.
Most people feel strongly
about who should inherit their assets and when. However,
they are often less
sure about what to consider as they
select an executor and trustees. Your executor is your
personal representative after your death and is responsible
for such functions
as:
- Administering your estate
and distributing assets to your beneficiaries.
- Paying the
estate expenses and any outstanding debts.
- Ensuring that
all life insurance, employee benefits and retirement
plan proceeds are received.
- Filing the necessary tax returns
and paying the appropriate federal and state taxes.
In short, your executor administers
your will. When these duties are met, the job ends. However,
if your will creates trusts to accomplish
more long-term goals, you need a trustee. Your trustee is
responsible for managing the trust’s assets and ensuring the
beneficiaries are provided for in accordance with provisions of the
trust. Individuals
are often torn between choosing an individual as the executor
or trustee and naming a corporate entity, such as a bank. Many people
name both
as executors or co-trustees. Here are the advantages and
disadvantages of each.
|
Advantages |
Disadvantages |
- Specialist in handling estates and trusts.
- No emotional bias. Impartial and usually free
of conflicts of interest.
- Never moves or goes on vacation.
- Never dies or gets sick.
|
- Usually has little familiarity with the family.
- Administrative fees may be higher.
- Rarely will
continue any family-owned business.
- Rarely maintains
real estate requiring management.
|
|
Advantages |
Disadvantages |
- More familiar with the family.
- Administrative
fees may be lower.
- May be familiar with family business
interests.
|
- Probably not experienced in handling estates and
trusts.
- Could have an emotional bias.
- May not be impartial
toward all heirs.
- Could have schedule conflicts.
- Could be incapacitated
at times.
|
Consider a living trust
A living
trust (also known as a self-declaration or revocable trust)
is a legal document that resembles a will. It contains
instructions for managing your assets should you become
disabled and directions for the distribution of your
assets upon death. Living trusts have two major benefits:
- Assets in a living trust
do not go through probate, which is the process of proving
and administering a will
under
the jurisdiction of a court. It can be a time-consuming
and potentially expensive process. It also subjects
your private
financial affairs to public scrutiny. All probate
records are public documents!
- A living trust provides a
perfect vehicle for managing your assets in the event
of a disability.
While you are
alive and well, you can act as your own trustee.
In the event of
disability or death, the successor trustee that
you selected takes over.
Estate planning
may include establishing a lifetime gifting program, making
the most of the unified credit or considering
charitable trusts. Before you sit down with an estate planning
attorney, take the time to get educated. One book that you
will find very helpful is J.K. Lasser’s "New Rules
for Estate and Tax Planning."
If you are not confident all is in order, seek professional
advice to alleviate potential problems down the road.
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