Everyone!

Estate planning starts with a will.  A current will is the foundation of an estate planning!  Everyone should have a will; either you are married or single, young or old, healthy or sick, rich or poor.

Wills are not identical but everyone has a will – either you make it yourself or the State you reside would make it for you by its law!  A will tells your survivors how to distribute the estate.  It lets you decide who will care for your children before they reach the legal age.  Your will designate a personal representative to settle your financial affairs.  You also need to decide who should make health care decisions for you in case you are not able to make an informed decision for yourself.  You need to give clear instruction on what your wishes would be in terms of terminal condition; such as do you want your life be extended by life sustaining procedures or not when you are in a coma.  There is no right or wrong decision – it all depends on personal value and beliefs!  Another important document to be considered is the Power of Attorney; it could be either specific or general POA.  The POA authorizes someone to manage your finances on your behalf in case you have become incompetent!

Before you decide to use other tools for estate plan, you need to know the size of your assets, the type and the ownership of each asset you own.  You also need to monitor your assets, how the asset would grow 20 years from now.  One good example is your retirement account – your 401(k) plan.  If you are 50 years old, your 401(k) plan’s valuation is $2 million, with annual contribution along with employer’s matching, what would your account look like when you retire?  What about the value of your home; with the housing value going up, along with other assets you own, your estate could easily go beyond your exemption.  Another good example is your life insurance policy, if you are the owner of your own policy, then the face amount would be included in your estate. 

There are several tools could help you to minimize your estate taxes.  The most common tools are Unified Credit Trust which allows you to pass part of your assets to your heirs and use your exemption amount.  Without UCT, surviving spouse inherits 100% of your assets and your exemption amount would be wasted.  Then at the time of the surviving spouse’s death, only one exemption would be used.  Another tool is the life time gifting program.  Section 2503 of the IRS code allows an individual to give away $12,000 per year per donee to any number of donees.  When spouses make joint gifts, the annual amount that is not subject to gift tax is $24,000.

One of the common tools for estate planning is Irrevocable Life Insurance Trust.  Life insurance is often the best way to fund estate tax, final expenses and settlement costs.  Life insurance costs pennies for each dollar of death benefit – it is the most cost effective way for generating estate settlement funds.  The liquidity provided by life insurance can protect assets from forced sale in the estate. With the ILIT, the insurance proceeds will be excluded from your estate for calculating tax purposes, but will be available for estate settlement costs and for long-term needs.  The trust can manage the life insurance proceeds; provide income for years to family members in several generations.

These are just a few estate planning tools commonly used, other tools include but not limited to is various trusts, family limited partnership, etc.  It’s wise to sit down with a planner to find out what are the best tools for your estate!  But it all starts with a will.

Who needs estate planning?  Everyone!

Editor’s Note: This Column is written by Yen Chan, Certified Senior Advisor. The information contains in this column is for general reference only.  Any Specific questions please contact your personal financial professional or Yen Chan at 301-840-8380 or visit www.seniorsolutionusa.com