ESTATE PLANNING ISN’T JUST FOR THE WEALTHY
Wills
There are several reasons why you should put together a written will:
To name a guardian for any minor children;
To name an executor for your estate; and…
To specify which beneficiaries (including charities) should get which assets;
Living Trusts
If you have significant assets, you should probably set up a living trust to avoid probate.
If you establish a living trust, you can transfer legal ownership of designated assets to the trust.
The transferred assets won't go through the probate process. Examples of assets you might want to consider transferring to a living trust include:
Your primary residence
Vacation properties
Vehicles and…
Antique furniture, artwork, and other collectibles
The trust documents name a trustee to be in charge of the trust's assets after you die and specify which beneficiaries will get which assets from the trust. While you're alive, you can function as the trustee – or you can designate your attorney, CPA, financial institution, or a loved one to be the trustee. After you die, the trustee that you've named in the trust documents will take over.
Living Trust Taxes While You're Alive
For federal income tax purposes, your living trust is a "revocable grantor trust," so it's ignored while you're alive.
For state-law purposes, the living trust is not ignored. When done properly, it achieves the estate planning goal of avoiding probate.
Living Trust Taxes After You Die
When you die, the assets in the living trust are included in your estate for federal estate tax purposes. However, assets that go to your surviving spouse aren't included in your estate for tax purposes – assuming your spouse is a U.S. citizen – thanks to the unlimited marital deduction privilege.
If you're married, your living trust can cover both you and your spouse.
The trust becomes irrevocable after the grantor dies (or both spouses die if both spouses are the grantors). At that point, it falls under the trust income tax rules, and the trustee will need to do some planning to get the best tax results.
Reality Check:
Wills and living trusts offer meaningful benefits, but you should mind the details to achieve the expected advantages.
Consider the following tips:
If you're married, you and your spouse should have separate, but coordinated, wills. You never know who will die first.
Wills and living trusts should be consistent with beneficiary designations and the manner in which assets are legally owned.
If you own real estate jointly with the right of survivorship, the other co-owner(s) will automatically inherit your share upon your death. It makes no difference if your will or living trust documents say otherwise.
If you set up a living trust, you must transfer legal ownership of assets for which you wish to avoid probate to the trust. Many people fail to follow through by transferring ownership to their living trusts, causing them to lose out on the probate-avoidance advantage. Wills and living trusts don't avoid or minimize the federal estate tax or state death taxes. If you have enough wealth to be exposed to these taxes, additional planning is required to reduce or eliminate that exposure.
Moving Target:
Federal and state estate and death tax rules have proven to be unpredictable.
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
For more information on this and other topics, please contact Kevin via any of the channels listed below:
📧 kevin@kmckernan.com | 📞 718-317-5007