The Holidays are here and it’s the perfect time to be with family giving gifts and reminiscing. It is also the perfect time to talk about your families legacy and future. That is why this weeks blog is dedicated to Estate Planning.
What is ‘Estate Planning’
Definition Provided by: Investopedia
Estate planning is the collection of preparation tasks that serve to manage an individual’s asset base in the event of their incapacitation or death, including the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law.
Some of the major estate planning tasks include:
– Creating a will - Limiting estate taxes by setting up trust accounts in the name of beneficiaries - Establishing a guardian for living dependents - Naming an executor of the estate to oversee the terms of the will - Creating/updating beneficiaries on plans such as life insurance, IRAs and 401(k)s - Setting up funeral arrangements - Establishing annual gifting to reduce the taxable estate - Setting up durable power of attorney (POA) to direct other assets and investments
BREAKING DOWN ‘Estate Planning’
Estate planning is an ongoing process and should be started as soon as one has any measurable asset base. As life progresses and goals shift, the estate plan should move to be in line with new goals. Lack of adequate estate planning can cause undue financial burdens to loved ones (estate taxes can run higher than 40%), so at the very least a will should be set up even if the taxable estate is not large.
Why Should I Estate Plan?
In the United States, assets left to a spouse or any qualified charity are not subject to U.S. Federal estate tax. Assets left to anyone else—even the decedent’s children— are taxed if that part of the estate has a value of more than $5,430,000 for a person dying in 2015. One way to avoid U.S. Federal estate and gift taxes is to distribute the property in incremental gifts during the person’s lifetime. Individuals may give away as much as $14,000 per year (in 2015) without incurring gift tax. Other tax free alternatives include paying a grandchild’s college tuition or medical insurance premiums free of gift tax—but only if the payments are made directly to the educational institution or medical provider.
Other tax advantaged alternatives to leaving property, outside of a will, include qualified or non-qualified retirement plans (e.g. 401(k) plans and IRAs) certain “trustee” bank accounts, transfer on death (or TOD) financial accounts, and life insurance proceeds.
Because life insurance proceeds generally are not taxed for U.S. Federal income tax purposes, a life insurance trust could be used to pay estate taxes. However, if the decedent holds any incidents of ownership like the ability to remove or change a beneficiary, the proceeds will be treated as part of his estate and will generally be subject to the U.S. Federal estate tax. For this reason, the trust vehicle is used to own the life insurance policy. The trust must be irrevocable to avoid taxation of the life insurance proceeds.
How Nutt Law Estate Planning and Probate Attorneys Can Help
Our Louisville, Kentucky, law firm has decades of experience properly planning for end-of-life decisions to make sure your family remains financially and emotionally stable and responsible. We’ll work closely with you to make sure all your needs and wishes are met, as well as help explain the pros and cons of each option you can make. Not only that, we aim to make sure your will is completed properly and within the required parameters.
Contact Nutt Law Office to schedule your free initial consultation and begin planning your estate today. It’s never too early to start planning.