4 Important tools used in Estate Planning*
Trusts
Trusts are a bit like a container that you can put your assets into — assets like real estate, life insurance policies or investments. Those assets then become property of the trust — not you. Trusts may allow you to:
1. Minimize estate taxes.
2. Distribute assets before or after death.
3. Fund a favorite charity.
4. Provide for loved one with special needs.
Assets in a revocable trust can be passed on to your beneficiaries outside the probate process. These assets will be considered part of your estate, for estate tax purposes. With an irrevocable trust, you give up ownership of the assets, and those assets are excluded from your estate.
Wills
Wills truly are the cornerstone of estate planning, and alone, they’re the simplest form of an estate plan. Everyone should have a Will. It’s through a Will that your wishes and plans are laid out during your life and carried out after your death. Wills generally include four (4) categories of information:
1. Designation of beneficiaries (who will receive your assets after your death).
2. Designation of an executor (the person who will carry out your wishes).
3. How and when your beneficiaries will receive the assets.
4. If you have any children under age 18, a Will is where you will appoint their guardianship in the event of your passing.
Gifts
Gifting is a common estate planning strategy. Gifting may allow you to decrease the overall size of your estate prior to your death, while transferring assets to your beneficiaries while you are still living. Other benefits of a gifting strategy can be:
1. Witness your loved ones benefit from your gifts today.
2. Transfer assets at current value, not a potentially higher future value.
3. Make payments to education institutions on behalf of others.
4. Make gifts to qualified charities to receive income tax deductions.
In order to prevent abuse, the Internal Revenue Service (IRS) places limits on the amount of money you can gift each year and over your lifetime.
These limits may change each year; seek advice from your own personal legal or tax counsel.
Life Insurance
In the estate planning process, life insurance can serve many different purposes depending on the needs of the plan owner and how beneficiary and ownership designations are set up (very important factor in estate planning). Upon your death, life insurance proceeds can be used to:
1. Pay debts owed by your estate.
2. Distribute monies to your beneficiaries outside of the estate.
3. Fund a trust for the benefit of others.
4. Pay off estate taxes (if applicable and not planned for), leaving estate intact for beneficiaries.
For some, life insurance can be used to equalize an estate. For example, one child may want ownership of a specific asset (family business or
residence) while another would not. Life insurance proceeds can be used to provide the second child with funds equal to the value of the assets
received by the first child.