Wednesday, December 14, 2011, AM | Leave Comment
Many folks have estate planning done for the purpose of minimizing estate taxes. That’s just fine. But that should not be the only reason to have the plan. It encompasses a lot more than that, such as living trusts, retirement planning, probate, and other basics to consider.
(Living trust is in operation during the lifetime of the person who establishes it.)
There is misconception among humans all over the world and that is that the concept of estate planning fits only the rich and older individuals.
However, in essence, it can be implemented by anyone regardless of the financial status of the person. Rich and the not so rich should all consider having estate planning.
Estate planning is not just to minimize taxes. What if you are incapacitated, physically and mentally – lying ill and helpless. You won’t be able to make decisions yourself. Estate planning should take care of that. Who will make financial and medical decisions for you? What will happen to your loved ones if you died?
Even if you do not have a whole lot of assets, you should care about estate taxes. Estate planning becomes a must if you are financially successful. It provides opportunities to shelter a larger portion of the estate from tax.
Federal Estate Taxes
Back in 2001, Congress made it into law – the Tax Act of 2001 – which encompasses significant changes in the taxation of estates. The tax on estate has decreased over the years and estates that will end up owing no tax has increased. These changes continued through 2009. In 2010, the only year, the entire estate tax was eliminated.
In 2011, the rules in existence before the changes (the year 2000 rules) have been reinstated. Many experts believe that these new rules will be reviewed, and potentially changed in 2012. However, we cannot live our financial life on pure speculation.
There are many other issues other than taxes that are equally important and should be considered to develop estate planning, some of which are mentioned below:
Discussing death and money
Even today, there is almost no discussion among family members about death and money. You need to have open and frank communication with your parents or kids about these subjects. Be sure your key family members can find important documents and are aware of any desired medical treatment options. Bring these topics out in the open so family members know about the latest issues and concerns for your estate planning.
Cannot make health decisions because of Incapacitation
Estate planning documents are invoked if you are not capable of making decisions for your health care. A durable power of attorney (POA) for health care, then, is a must to appoint. It will give POA the ability to make medical decisions. The living will tells your family and health care providers how you want to be treated if you become terminally ill. If you have made your will more elaborately, it might also state your wishes about being placed on life support.
Appoint power of attorney
Without appointing a power of attorney, it may be necessary to go to court, more often than you would like, just to handle routine transactions. Choose someone that is capable and knowledgeable such as an adult child, sibling or trusted friend. In the absence of such a person, you should consider appointing your attorney or accountant.
Choose beneficiary for your retirement plan
Appoint beneficiary of your retirement plans, including IRAs. You might need a separate form, other than your will, to appoint whomever you choose as your beneficiary.
Reduce taxes with Irrevocable Life Insurance Trusts
The proceeds for life insurance are not subject to income taxes. Taxes come in picture only when your beneficiary is your estate. Speak with a qualified attorney in case your life insurance assets are approaching the level where estate taxes may be assessed. Only a qualified attorney will be able to tell you how a life insurance trust may help keep proceeds out of your estate and thereby minimize taxes.
Review your estate planning regularly
Experts say estate plans should be reviewed regularly, every year if not more frequently. Some estate attorneys suggest a review every three or four years. Your situation might change – through divorce, death of a spouse, birth of children or grandchildren, changes in wealth status, etc. In those cases, you may want to review your plan more often.
Use qualified attorney for your estate planning needs
You can’t go to any attorney for taxes in general and estate taxes in particular. You gotta have an attorney who has done such work, is reputable and knowledgeable about estate planning.
In a Nutshell
In essence, estate planning means providing for your family after you are gone – never to come back again. That’s scary, ain’t it? The thought that you don’t come back to fix your mistakes. So take action now, talk to a qualified attorney and be done with it.