Answers in Estate Planning

Herman...David & James have provided some great points. To add to their comments, I recommend reviewing and or updating your estate plan at least every 3 years or whenever a significant life changing event occurs (e.g., getting married, a divorce, changing jobs, at retirement, starting a business,having a baby, moving to another state, at the death of a spouse or a beneficiary). At the completion of a good estate plan (or review) you should be able to know the answer to - What happens if I'm disabled and/or incapacitated and unable to make decisions for myself? and What happens when I die? Finally, pay specific attention to who you designate to manage your estate at your disability or death. Frequently people will name a spouse or child for this responsibility. In itself not a bad idea. However, most people do not have the experience or expertise to handle all the tasks necessary. Consider preparing a letter of instruction to your agent, personal representative or successor trustee (if applicable) outlining who they should call to provide the technicall assitance necessary to make sure thing run effciently.

No you cannot avoid it if you meet the threshold of the current estate tax legislation in effect when you die. Remember the estate tax has been repealed and re-instated 3 times. It has been changed numerous time. There are stategies which you can put in place considering the assets you own, the ownership of those assets to reduce the monetary funds to pay the taxes if you qualify. It really depends on what you want to accomplish with you estate which will determine the tools and actions to take to lessen the tax burden. Always pay taxes with discounted dollars.

Blair and James are right on the Mark. Let me add a gentle reminder that when Life Insurance is owned by an individual, the proceeds are included in the owners taxable estate. A strategy that is relatively easy to implement would be to transfer the ownership of the policy to an irrecoverable trust or adult child thus removing the proceeds from the owners taxable estate. But don't try any of this at home! Find a good estate attorney that you like and trust - if possible.

Hi Adlai,

Thomas provided some excellent information. Here are a few other items to add to it:

If you have an FHA loan, generally you cannot drop PMI (Private Mortgage Insurance) for five years. If you refinance to a non-FHA loan, then the PMI requirements (if any) would be with the new lender.

Generally, your lender will want you to have the house valued. The reason is you may have paid off enough principal to bring the value of the loan down another 10%, but if the home's value has also dropped, you may not have 20% equity.

Contact your mortgage lender and find out what they require. It should be fairly straight forward, and while it may cost a few dollars to have your home appraised, you will save in the long run by not paying the additional amount in insurance.

Hello Ryder. Great question. A Charitable Remainder Trust is a tax advantaged way of leaving funds to a charity at your death. You irrevocably place money into this trust, the trust makes lifetime income payments to you from the principal, and when you pass, whatever remains goes to the designated charity. Since the decision to have the proceeds go to a charity is irrevocable, you get a tax deduction today for today’s value of the anticipated remainder going to charity. Depending on your age and income schedule agreed to, you may very well see a current tax deduction up 30-60% of the deposited amount.

When estates have more funds than they need, we may often suggest they establish this type of trust. They then can use the monthly income stream from the trust to acquire a guaranteed life insurance policy for their family to replace the gift to charity. There are many wins in doing this. The charity gets a benefit and the family still gets the value as well. And for the family share, if structured correctly, the replacement funds from the life insurance can be structured to be OUTSIDE of the estate and not subject to estate taxes. So you’ve taken an asset that was a part of the estate, given it to charity, and yet replaced it for the family free of estate taxes.

The caveat – it is irrevocable, so it cannot be undone once done. Whereas “regular” trusts, most often referred to as Revocable Living Trusts, are revocable and can be undone. If doing the charitable trust, make sure it is with assets your will not need, or at least can utilize the income and be satisfied with that. Hope this helps.

Herman, I recommend you review your trustee list beneficiaries at least every three years. In addition to those minor changes, a call into your estate planner that often should be made just to have them check and ensure your provisions are up to date. Most plans drafted these days have provisions that will flow with the environment, but that may not always be the case, or some more drastic changes to legislation may occur either federally or within your state. Other provisions may be relatively new concepts. For example, the idea to include a “protector clause” has gained popularity in recent years. This provisions allows your beneficiary to ask independent parties to have the current trustee replaced with the next trustee in line. For example, this can protect the beneficiaries if your brother is the trustee and he gets Alzheimer’s. So in summary, please review the parties in your documents for updates, and also check in with the planner every three years.

Herman - The answer to this question depends very much upon your particular circumstances. You will want to ensure that your advance directive and medical power of attorney are in compliance with the current laws of your state, so keeping an eye or ear out for changes in this area is a good idea.

Much estate planning is focused on tax mitigation, which depends upon your asset base, current tax rates, and expected future tax rates. If you read any financial periodicals then you are aware of the roller coaster that estate planners have been riding the past few years. If you have substantial assets and have not recently updated your plan, now is the time to do it.

The current $5mm unified credit ($10mm for married couples) may not last, so many estate planners are advising individuals to make important planning decisions in 2012. The low interest rate environment is also favorable for many common estate planning techniques. If you have a financial advisor and an estate planning attorney with whom you work well, it is not a bad idea to ask for a high level review every couple of years or more often during times of significant change. A well-designed plan should not require a lot of attention if the underlying environment has not changed, but your advisors may have new ideas or ways to improve your situation.

The suggestion to read "Estate Planning Smarts" is not meant to replace competent advice. It is meant as a starting point for an individual that admittedly has no foundation at all, and wants to gain some understanding. The book is written in plain English for the layman, and can be read in sections that apply, and in no more than a few hours time. It is NOT a technical tome in any way. Respectfully, taking the stance that an individual doesn't have the wherewithal, and 4 or 5 hours time to read a very non-technical book to get a basic understanding of some of the questions she should be thinking about, is a disservice to that individual. As part of our duty to help people, I believe we have an obligation to help them educate themselves. If you will take the time to get a copy of this book for yourself and read it, you will see why it is an appropriate resource for someone to start with. Personally, I would never want a client that just says, "You do it; I don't want to know what you're doing." They don't have to have all of my technical knowledge and years of experience, but neither should they be ignorant.

I respect Victors views but disagree. Reading an entire book on estate planning takes too much time and may still leave you perplexed. Instead, find an estate attorney that you trust. A referral is a good way to do that. Nothing beats specialized advice and guidance from a professional that you trust! Good luck!

Vicky, this is a very big question. The first reasons you must have clear in your own mind are why you think you need a trust fund - what are you trying to accomplish that you cannot without a trust? What you would plan to fund it with? Who would be your trustees and other fiduciaries? Are there other ways to accomplish the same goals? Unless you have an urgent need to act right now, I highly recommend you take some time to read the book "Estate Planning Smarts" by Deborah L Jacobs. It's a very understandable book written by a top-notch attorney. You can find it on Amazon, or at your local library. Read this book before you start talking to lawyers or other estate planning advisors.

The estate tax is a tax on money inherited by anyone other than the deceased's spouse at the time of death. Currently the federal estate tax applies only to amounts over $5,000,000. The 2011 estate tax rate is 35%, alhtough it is has been as high as 55% in the recent past. One can inherit up to $5,000,000 without paying any estate tax. There are only a few thousand estates in the entire country that are subject to the estate tax under the current limits. However, the tax laws have changed frequently over the past few years, and there is no guarantee that the exemption will remain at $5million. While there are no ways to avoid the estate tax, there are ways to reduce the size of an estate before the individual dies. An individual may gift up to $13,000 per year to another individual without having to pay gift tax, which is a discussion for another question. This strategy is often implemented by gifting $13,000 to each child, grandchild, spouses, and other family members each year. Sometimes, these gifts are made to fund a premium on a life insurance policy that will be used to pay the estimated estate tax. Any payments of tuition directly to an educational institution do not qualify as gifts, so often high net worth inididuals will pay for their grandchildren's private school and college tuition. There are more compicated strategies to reducing the size of an estate, but to sum it up, the only way to reduce or avoid estate tax is to essentially spend or give away the money.

Estate taxes are imposed by the federal government on the total assets or estate of U.S. citizens and residents when they die. For this reason, the term "death tax" has been coined to describe estate taxes in a pointed way. Currently in the United States there is an exclusion of $5 million ($10 million for a married couple), which means that someone who dies in 2011 with an estate of less than that amount pays no estate tax. However, the exclusion amount has varied wildly over the past few years, from $1 million to zero to the current limit. It is a political football.

There are a number of ways to mitigate estate taxes, through trust structures, gifting programs, structured insurance programs, ROTH conversion, and other methods. A good financial advisor or estate planning attorney can help you with planning and implementation. I hope this helps. Jim

Good question, Vicky. The first question you should ask yourself is what are you trying to achieve by creating a trust? Are you trying to provide for your children in the event that you and your spouse should pass away before they come of age? Do you have to consider estate taxes, which come into play if your individual assets are greater than $5 million ($10 million with a spouse)? Do you have a child or other dependent with special needs?

The answer to these questions will help determine whether you even need a trust, and if so, how it should be structured to achieve your objectives. We advise our clients to consult with an attorney in their home state who specializes in trust and estate planning issues. There are professional directories that can help you identify qualified counsel. If you happen to live in California, please feel free to contact me and I would be happy to give you a few options. Once you have identified someone suitable, be prepared to discuss your income, expenses, assets, liabilities, and life insurance coverage --- much of the same information you would be asked to prepare for a meeting with a financial advisor --- and give some thought to whether you will want a professional trust company or a close friend or family member to serve as the trustee. There are pros and cons to each approach, depending on the specifics of your situation. If you can share more specifics, please reply to the thread and I will respond, or phone me directly at (888) 625 7768.

First of all, I'm not a lawyer, and you should certainly meet with an estate planning attorney. That being said, a will, living will, health care proxy and durable power of attorney are all different estate planning documents. And a trust can either be set up within a will or outside of it. A trust is generally set up to hold assets outside of your name, either to protect them from being encroached upon by others or to remove them from you estate. I hope these simple answers help.