An Estate consists of all the assets and liabilities a person owns and owes. The asset may be in the person's sole name, held in a business entity (Corporation, LLC, Partnerships, etc.), or through a trust. An estate includes real property (your home or investment property), all personal property (automobiles, bank accounts, furniture, cash, stocks and bonds, jewelry, retirement plan benefits collectibles, art, etc.), all business interests (sole proprietorships, partnerships, corporations, LLC's), life insurance (See FAQ #11), retirement plans and all debts, liabilities and obligations owed to others.

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WHAT IS ESTATE PLANNING?

Estate Planning is the process of gathering and distributing an estate for the orderly administration and disbursement of a person's estate. The process includes taking actions that will minimize taxes, avoid Probate Proceedings and distribute assets to the appropriate beneficiaries.

Through estate planning, you can determine:

Who manages your assets, makes your personal and health care decisions if you are unable to do so for yourself

When it makes sense to distribute or gift your assets during your lifetime

Who receives your assets after your death and how they receive it

Estate planning also involves financial, tax, medical and business planning.

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DO I NEED ESTATE PLANNING?

YES, whether your estate is large or small. Either way, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.

If your estate is small, you may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets. If your estate is large, our office will also discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of estate tax which otherwise might be payable after your death.

If you fail to plan ahead, a judge will simply appoint someone to handle your assets and personal care. Your assets will be distributed to your heirs according to a set of rules known as intestate succession.

You should have an estate plan if:

You are the parent of minor children

You have property that you care about

You care about your health care treatment

If you do not have minor children, do not care about your property, and have no concerns about your health care treatment, then you do not need an estate plan. But if you meet any of these categories above, you should have an estate plan.

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WHAT IS A REVOCABLE LIVING TRUST?

A Revocable Living Trust is a legal agreement you draft for the management and distribution of your property to accomplish your Estate Planning (See FAQ #2). The assets in a revocable living trust (also known as a family trust or revocable inter vivos trust), are administered for your benefit during your lifetime and distributed to your beneficiaries after your death, all without the need for probate proceedings.

Most people name themselves as the trustee in charge of managing their living trust's assets. By naming yourself as trustee, you can remain in control of the assets during your lifetime. In addition, you can revoke or change any terms of the trust at any time as long as you are still competent.

In your trust, you will also name a successor trustee who will take over as the trustee and manage the trust's assets if you become unable to do so. Your successor trustee would also manage the trusts assets for your beneficiaries and distribute your assets per your instructions stated in the trust.

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WHAT ARE THE BENEFIT OF A LIVING TRUST?

The benefits of a living trust are as follows:

Name the beneficiaries who are to receive your trust's assets when you die

Maximize the full use and value of your tax credits to legally avoid unnecessary taxes

Avoid Probate (See FAQ #7)

Privacy

Manage your financial affairs

Choose who manages your estate should you become incapacitated

Saves Time & Money

You should only consult with a qualified estate planning attorney to assist you with your estate planning and the preparation of your living trust.

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WHAT IS A WILL?

Basically, a Will is a legal document which allows a person to provide instructions on how they want their property disposed at their death.

A will is a traditional legal document which:

Names beneficiaries of your estate who will receive your assets after your death

Nominates an executor who will be appointed and supervised by the probate court to manage your estate; pay your debts, expenses and taxes; and distribute your estate according to the instructions in your will.

Nominates guardians for your minor children.

A Will does NOT avoid probate (See FAQ #7)

Most assets in your name at your death will be subject to your will. Some exceptions include securities accounts and bank accounts that have designated beneficiaries, life insurance policies, IRAs and other tax-deferred retirement plans, and some annuities.

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WHAT IS PROBATE?

Probate is a court-supervised process for transferring a deceased person's assets to the beneficiaries listed in his or her will.

Typically, the executor named in your will would start the process after your death by filing a petition in court and seeking appointment. Your executor would then take charge of your assets, pay your debts and, after receiving court approval, distribute the rest of your estate to your beneficiaries. If you were to die without a will a relative or other interested person could start the process. In such an instance, the court would appoint an administrator to handle your estate.

The probate court hears and resolves disputes about the distribution of assets fairly quickly through a process with defined rules. The probate court also reviews the personal representative's (executor or administrator) handling of each estate, which can help protect the beneficiaries' interests.

One disadvantage is that probate proceedings are public. Your estate plan and the value of your assets will become a public record. Also, because lawyer's fees and executor's commissions are based on a statutory fee schedule (See Below), a probate may cost more than the management and distribution of a comparable estate under a living trust. Also, a living trust is a confidential document.

Probate Fees are calculated on your GROSS estate, not your net estate. (If a house is worth a million dollars, but it has a mortgage of the same amount meaning no equity, the probate fees are $46,000)

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WHO SHOULD BE MY EXECUTOR OR TRUSTEE?

You may name anyone as your executor or trustee. What is important that you choose someone who is responsible, prudent and honest. Discuss your choice with your estate planning attorney.

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WHEN SHOULD I START MY ESTATE PLAN?

IT'S SIMPLE...NOW! The only time that you can prepare and implement an estate plan is while you are alive and have legal capacity to do so.

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WHAT IS THE CURRENT ANNUAL GIFT TAX EXCLUSION?

The annual gift tax exclusion is the amount a person can give to any individual each year without the gift being considered a taxable gift. Currently, in the year 2009, the exclusion amount is $13,000. A married couple is able to give up to $26,000 to any recipient or recipients without incurring any federal gift tax.

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WHAT IS THE CURRENT FEDERAL ESTATE TAX EXEMPTION?

Currently, in 2009, the federal estate tax exemption is $3,500,000. Meaning $3,500,00 of an estate will be free from federal estate tax on the death of an individual. This also means that a married couple, if they use the exemption amount effectively, will be able to transfer up to $7,000,000The federal estate tax will be repealed for the year 2010 and is slated to $1,000,000 of an estate on January 1, 2011 and beyond. [Attorney's Note: President Obama has proposed freezing the federal estate tax exemption at the 2009 rate of $3,500,000 million]

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WHAT IS THE CURRENT FEDERAL GIFT TAX EXEMPTION?

Currently, in 2009, the federal gift tax exemption is $1,000,000.

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WHAT IS AN IRREVOCABLE LIFE INSURANCE TRUST?

The purpose of a life insurance trust is to avoid federal estate taxes on life insurance proceeds owned or controlled by the decedent. Anyone who buys their own life insurance will usually have the face value of the insurance included in their estate for federal estate tax purposes.

Life Insurance owned by the insured is part of your estate (See FAQ #1): For example, if you have a house, bank accounts and stocks that add up to $1,500,000, you may believe that your total estate is $1,500,000. However, if you also have $1,000,000 of life insurance which you are the owner of, instead of a $1,500,000 estate, you have a $2,500,000 estate, and estate taxes will be due ON YOUR LIFE INSURANCE after you die.

In order to avoid estate taxes on a Life Insurance Policy and to remove the policy from your estate, the policy must not be owned by the insured. This can be accomplished by setting up an Irrevocable Life Insurance Trust (ILIT) whose trustee buys the insurance and pays the premiums for the insurance.

If possible, the Life Insurance Trust should be created before the purchase of the insurance. The Life Insurance Trust should be the original owner of the insurance policy. If the insured transfers an existing policy to the insurance trust, the insured must survive the date of the transfer by at least 3 years, or else the insurance proceeds will be included in his or her taxable estate.

As with all your estate planning, a Life Insurance Trust should be discussed and drafted only by a qualified attorney to assure all proper steps and laws are followed.

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Estate Tax Faces Its Own Life-and-Death Struggle

"Parties are at odds on how to deal with a levy set to disappear entirely in 2010 before being resurrected at full pre-Bush level..."
www.WSJ.com

Commercial Real Estate’s $1 Trillion Time Bomb

"According to analysts at Deutsche Bank AG, as property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks' $1 trillion 'core' commercial-mortgage holdings..."
www.WSJ.com

Debate Over Estate Tax Likely to Wait Till 2010

"A split among Democrats and a busy fall agenda is likely to have lawmakers hold off this year on debating the future of the estate tax, even though it expires at the end of the year..."
www.TheHill.com