 |
|
|
Trusts
and Wills
PROTECT YOUR HEIRS AFTER YOU ARE GONE
A Will is not the best way to provide for your loved ones avoid
probate and reduce estate taxes.
YOU HAVE WORKED HARD FOR your money, and now you face another
challenge: passing on your assets to your spouse, children or
others. Did you know that a will, which states who gets your
assets after you die, is not your only option and may not be
the best one? Another legal arrangement—a living trust—allows
you to pass on your assets quickly and without spending more
than necessary on estate taxes or court costs. But before you
sign on the dotted line, get the facts:
A living trust—which should not be viewed as a substitute
for a will—gives you an additional measure of control
while you
re still around. Simply put, you transfer the
ownership of your assets (savings accounts, real estate, stock,
mutual funds, etc.) from your name to the living trust
s name (the Jane Doe Trust, say). During your lifetime, as
the “trustee,” you can remain in control of these
assets. You also can name a money-savvy “co-trustee,”
such as a bank. Any “successor trustee(s)” that
you name could take over at your death or in the interim if
you were to become physically or mentally impaired. But
avoid a common error that could defeat your plans: forgetting
to retitle all your assets into your trusts name.
Benefits of a living trust The property listed in a living
trust does not go through probate (the costly, time-consuming
and public court process that validates a will). A living
trust is also harder to successfully contest than a will,
so your wishes are more apt to be followed.
A living trust is often “revocable”: You can
change or cancel it at any time. But when you die, your assets
will either be distributed to your heirs per your instructions
or your trust will continue in an irrevocable form stating
how you want your assets managed and distributed (even years
after your death), depending on
A living trust can spell out when and under what conditions
your heirs get your assets, so that like a will you control
your assets from the grave.
Some caveats: You will still need a will to cover assets
missed by the trust And dont confuse a living trust with a
“living will,” which addresses health matters.
Despite its benefits, a living trust by itself does not reduce
estate taxes and federal taxes alone can take 37% to 55% of
your estate. Other estate planning strategies and trusts can
help reduce taxes.
What to watch out for
Even if talked-about tax law changes dont materialize, realize
that what looks good today may have some unexpected consequences.
Keep in mind:
Drawing up a living trust (even deciding if you need one)
isnt a do-it-yourself job. It should be drafted by a lawyer
experienced in estate planning in your state. Plan to spend
$1000 or more.
Do not rely on do-it-yourself trust kits. You could unwittingly
make a mistake or overlook contingencies that would invalidate
your wishes.
Choose a suitable trustee. The person or institution
needs to be honest, money savvy and have enough time to devote
to this important job. Of course, it would be helpful if your
trustee also had the wisdom of Solomon to resolve disputes.
Finally, if you plan to bequeath a family business or other
big illiquid (hard to sell) asset, realize that these can
generate hefty estate taxes. Many families end up having to
sell such assets at fire-sale prices. In order not to leave
your heirs high and dry, consider taking out a second-to-die
life insurance policy that pays when the surviving spouse dies.
The proceeds can help cover estate taxes.
Other Trusts That May Reduce Taxes
TO AVOID LOSING ANY UNIFIED ESTATE TAX CREDIT consider a Bypass
Trust, which lets a surviving spouse use the deceaseds assets
without taking ownership.
TO PROVIDE AN INCOME FOR YOUR SPOUSE, look into a qualified
Terminable Interest Property Trust (QTIP). In addition to earning
interest, your surviving spouse can use the principal for current
medical or housing needs, and you can stipulate where any remaining
assets go (such as to your kids from a prior marriage) when
the surviving spouse dies.
TO BENEFIT YOUR GRANDKIDS, a Generation-Skipping
Trust lets you and your spouse transfer up to $2,2 million
in assets ($1.1 million if you are single) to beneficiaries
at least two generations younger. Your children can receive
the trust income and use the principal to benefit your grandchildren
(for, say, education or housing).
How To Trim Estate Taxes
The Unified Estate Tax Credit currently lets you give away
up to $675,000 (for the year 2001) in assets without owing
federal estate tax. If your estate exceeds $675,000, consider
two strategies to trim taxes
GIVE AWAY UP TO $10,000 ($20,000 as a married couple)
every year, gift-tax free, to anyone you choose.
GIVE AWAY YOUR LIFE INSURANCE WHILE ALIVE, to take
the proceeds out of your estate. Give the policy to your spouse,
kids or set up an irrevocable life insurance trust (Consult
a tax adviser first.)
To find out what you are worth, add up your home's
equity, bank accounts, retirement accounts, mutual funds and
life insurance, as well as jointly owned property, which is
subject to estate tax.
|
.gif){kind=small}
.gif){kind=small}