Financial Independence Takes Planning
Estate planning is designed to help us know that the wealth we have worked so hard to accumulate over the years is preserved for our heirs. Whether it's providing income for a spouse, educating children or grandchildren, or leaving money to a favorite charity, we all want to know that the proceeds from our estates will be used to fulfill our wishes.
Yet, without planning, huge portions of estates are often sacrificed to taxes. How often do we read about situations in which sizable estates are reduced by millions because of estate taxes? It's sad, but it happens frequently. Under current law - until 2009 - estate taxes can devour a substantial percentage of an estate. The law requires that these taxes be paid in cash, usually within nine months after death. If most of the estate's holdings are in real estate or other illiquid investments, heirs may have trouble raising cash to pay the estate taxes.
As Certified Financial Planners, our job is to help you identify potential estate planning issues and to work hand in hand with other professionals who will help create your estate plan. Some of these issues include identifying the need for: Gifting, Wills, Living Trusts, Irrevocable Life Insurance Trusts, Charitable Trusts, Qualified Personal Residence Trusts, Qualified Terminable Interest Property Trusts, AB Trusts, Medical Powers of Attorney, and more.
What is a trust? A trust is a legal agreement between two parties: the person who creates the trust and the person, institution or independent trust company responsible for administering the trust, known as the trustee. The trustee manages the assets placed in the trust for the benefit of a third person, the beneficiary.
How can trusts reduce your estate? Assets irrevocably placed in a trust are removed from your estate. One example of a specific type of irrevocable trust is a life insurance trust. This allows the trustee to purchase a life insurance policy on the life of the person who owns the estate. Usually, the trust is the beneficiary of the policy. After all debts of the estate are paid, the trustee distributes the proceeds of the life insurance policy to the beneficiaries of the trust, according to the instructions in the trust. The most important benefit of a life insurance trust is that it is not included in your net estate because you do not own it directly. By transferring ownership of the policy to a trust, your estate taxes can be dramatically reduced.*
How do trusts help ensure that your wishes are carried out? Everyone has different dreams about how the proceeds from their estate should be used. The best way to ensure that your wishes are carried out is by providing specific instructions in a trust. No one can change these instructions and the trustee must follow them to the letter. Whether it's providing income to a surviving spouse, funding education for children or grandchildren, or contributing to a favorite charity, the trustee complies with the instructions in the trust.
Timing is Everything ... Plan Now
