6 Steps to Help Achieve Estate Success

For many people, more time and attention may be devoted to building an estate than in planning for its ultimate disposition. Understandably, enjoying the fruit of your labors is generally far more interesting than planning for what might happen when you are no longer around.

Unfortunately, the Internal Revenue Service (IRS) is very interested in your estate, and has made certain that lack of (or improper) estate planning could (at the very least) create headaches for your heirs, and, more importantly, could cost the estate money in terms of unnecessary estate taxes. Here are six basic estate planning strategies that can help you gain control and avoid some unnecessary pitfalls:

1. Keep Good Records
   When you die, the first thing your heirs will have to do is sort out your financial affairs. You can help them by maintaining good records and letting them know where to find your will, insurance policies, bank statements, and other important documents.
2. Have an Up-to-Date Will
   A will is perhaps the most basic legal estate planning document, specifying how your property is to be distributed at your death and naming guardians for minor children. In addition, it appoints an executor who will coordinate (usually with an attorney) the process of probate, the preparing and filing of final income and estate tax returns, and the distribution of assets. Without a will, the state will determine the distribution of assets according to state inheritance laws.
3. Beyond Your Will
   A will deals with your estate after you die. However, incapacity during your lifetime may affect your ability to make financial and health care decisions. A durable power of attorney designates someone to make financial decisions on your behalf in the event of incapacity. A living will spells out your wishes for the use of life-sustaining measures if you are incapacitated. A health care proxy (also known as a medical power of attorney) gives someone else the right to make important health care decisions on your behalf under specified conditions. A complete estate plan encompasses both lifetime and post-mortem planning.
4. Take Advantage of the Applicable Exclusion Amount
   In 2007, each taxpayer has a $2,000,000 combined gift and estate tax applicable exclusion amount (scheduled to increase to $3.5 million in 2009 based on the Economic Growth and Tax Relief Reconciliation Act (EGTRRA)) that can be applied to exempt from transfer taxation assets given away during lifetime or passed on to heirs at death. Individuals with large estates who leave everything to their spouse forfeit the use of their exemption and run the risk of having some assets unnecessarily taxed at the second death (assuming the survivor's estate is not consumed and continues to grow), because the surviving spouse can only use his or her own exemption. The use of trusts can help minimize this problem for large estates (Note: All gift and estate taxes are scheduled for full repeal in 2010 under the new law; however, due to obscure budgetary rules, all provisions contained in EGTRRA will "sunset," or automatically expire, in 2011, thus effectively reinstating the current transfer tax levies absent additional action by Congress in the interim).
5. Use the Annual Gift Tax Exclusion
   Everyone can give away up to $12,000 per year in 2007 ($24,000 in the case of joint gifts made by husband and wife) to an unlimited number of recipients tax free. For individuals with large estates, a planned giving strategy using this exclusion may be an attractive way to remove assets that are appreciating in value from the estate, which would otherwise have the potential to increase estate taxes if left in the estate.
6. Make Proper Life Insurance Beneficiary Arrangements
   Life insurance kept in an estate owned by the decedent or in which the decedent has incidents of ownership is includable in the gross estate for purposes of calculating estate taxes when properly structured. An irrevocable life insurance trust removes the insurance proceeds from potential estate tax exposure.

Copyright © 2007 Liberty Publishing, Inc. All rights reserved. EPXIDEA2