| An estate is the total value of everything we | | | | sec¬ond death. In fact, the bill may even be higher |
| own--and business and personal assets can add up | | | | if the estate continues to grow. |
| quickly. Everyone has an estate. And realize it or not, | | | | - The "second-death" problem -- How big a mistake |
| everyone also has an estate plan. | | | | can it be for an estate owner to leave everything to |
| An estate plan can be designed by clients and their | | | | his or her spouse under the marital deduction? |
| professional advisors to achieve the client's personal | | | | Consider this example: A married couple with two |
| and financial objectives. Or, it can be an arrangement | | | | children each have assets of $1 million, which they |
| imposed upon survivors by state intestate succession | | | | intend to leave to each other under the unlimited |
| laws if someone dies with¬out a valid, up-to-date | | | | marital deduction. If the husband dies first and leaves |
| will. Even though a will is the most basic estate | | | | his entire $1-million estate to his wife under the unlimited |
| plan¬ning tool, two out of three Americans die | | | | marital deduction, his taxable estate will be zero. As a |
| without one. | | | | result, how¬ever, if the wife does not remarry, |
| A comprehensive estate plan can arrange the | | | | her gross estate at her death could be $2 million, under |
| ownership, management and distri¬bution of your | | | | the unlikely assumption that the assets will not |
| assets in ways that meet your needs and objectives | | | | appreciate. Without some careful estate planning, the |
| while mini¬mizing estate shrinkage. Without such a | | | | federal estate tax could take a big bite out of the |
| plan, whatever you may think is going to happen to | | | | children's inheritances at their mother's death. |
| your estate after you're gone probably won't. | | | | Meeting estate planning objectives. If an estate is going |
| - Estate settlement and distribution -- Estate transfer is | | | | to be big enough to tax, a will is just the beginning. The |
| a privilege that can be exercised only by following | | | | client may also need to do some additional estate |
| specific legal procedures designed to protect the rights | | | | planning to meet other impor¬tant objectives: |
| of deceased's heirs. Estate settlement, as this process | | | | - Avoiding probate |
| is called, involves the assigned executor making an | | | | - Reducing or eliminating estate shrinkage |
| inventory of the person's business and personal | | | | - Providing sufficient liquidity to cover estate settlement |
| assets, paying all debts and claims against your estate, | | | | costs |
| identifying the legal heirs of the remaining estate | | | | - Minimizing federal estate taxes and state death |
| assets, and distributing those assets accordingly. | | | | taxes |
| - The problem of estate shrinkage -- The costs | | | | - Providing for the orderly disposition of a business or |
| associated with estate settlement include funeral | | | | professional prac¬tice |
| expenses, medical bills, legal fees, administration costs | | | | - Maintaining the family's lifestyle and meeting other |
| and other debts, as well as various federal or state | | | | financial secu¬rity objectives, |
| taxes. These costs can drastically shrink the size of | | | | To avoid making mistakes, people need professional |
| your estate. Because they must be paid before the | | | | advice from a qualified attorney, trust officer, |
| estate can be fully settled, they can also delay | | | | accountant or other financial advisors. Estate planning |
| distribution of your remaining assets to your heirs. | | | | has helped countless numbers of people reduce their |
| - The need for estate liquidity -- Estates are often | | | | estate tax liabilities and prevent the needless loss of |
| cash poor. Unless sufficient liquidity has been provided, | | | | business and other assets. |
| the forced sale of nonliquid assets to pay settlements | | | | Remember, however, that while tax savings may be a |
| costs can compound estate shrinkage. In these | | | | primary issue, they're not the only issue. Estate planning |
| situations, the buyer always has the upper hand. But | | | | is also a way for people to reflect, perhaps for the |
| even people of modest means who never considered | | | | first time, on what they'd like to have happen to their |
| themselves rich enough to need much estate planning | | | | property after they're gone. Much of the cost and |
| can be in for a shock. In addition to having to settle-up | | | | inconvenience of estate settlement can be reduced or |
| with Uncle Sam and state tax collectors, creditors | | | | eliminated during a person's lifetime. It can be done by |
| must be paid in full before a taxpayer's heirs can | | | | making decisions to imple¬ment strategies for |
| receive their inheritances. | | | | conserving and distributing your assets most |
| - A false sense of security about estate taxes -- Part | | | | advantageously. Among these strategies are the use |
| of the problem may be that people are so concerned | | | | of: |
| about reducing their income taxes, they forget that the | | | | - Jointly owned property |
| federal estate tax rate is virtually double the income | | | | - Lifetime gifts |
| tax rate. Actually, anyone with at least $600,000 in | | | | - Wills |
| assets has a potential federal estate tax liability and | | | | - Trusts |
| may also face state death taxes. Federal estate tax | | | | - Life insurance |
| laws, particularly the unlimited marital deduction, have | | | | Planning to provide for a family's needs at the |
| lulled many taxpayers into a false sense of security. | | | | household head's death is essential, especially if the |
| Even with a will, anyone who thinks "leaving it all to my | | | | employer's pension option is "single payer." Annuities |
| spouse" is the way to avoid estate taxes and other | | | | offer the security of a guaranteed death benefit, which |
| estate settlement hassles needs to think again. | | | | passes to the owner's named beneficiary(ies) free of |
| - The marital deduction is an important estate planning | | | | the costs and delays of probate. With some annuities, |
| tool. It provides that any assets passing to a surviving | | | | a spouse who is the primary beneficiary has the option |
| spouse pass tax free at the time the first spouse dies | | | | of assuming ownership of the annuity and continuing to |
| (assuming the surviving spouse is a U.S. citizen). | | | | accumulate money on a tax-deferred basis. |
| However, the marital deduction ends after the first | | | | Retirees should continually review their estate plans |
| death. Unless the surviving spouse remarries, the real | | | | because life's changes often create a need to alter |
| impact of the federal estate tax is felt at the | | | | these arrangements. |