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Frequently Asked Questions & Answers about Estate Planning

Does everyone need a will?

Yes. Some people think a will is unnecessary since state laws will divide and distribute your assets after your death. Others think that since they do not have large estates, they don’t need wills. But here is what will happen if you die without one: State laws will determine who gets your property. This is called “intestate succession”. Your property will first be divided among your spouse and children, or to your other closest relatives. If you are not married and have no children, then your property will be distributed to your next of kin. If the courts cannot find your next of kin, the property goes to the state. If you do have children and die without a will, a court will determine who will care for your young children and their property if the other parent is unavailable or unfit.
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When should I review my existing will?
Your will may be changed as often as you wish. If the change you desire is relatively simple, an amendment to the document, known as a codicil, is executed with the aid of an attorney. If you decide to write a new will altogether, the new document should specifically revoke all prior wills. Something to remember: Revoking a will automatically revokes its codicils, but revoking a codicil does not necessarily revoke a will. Also, you should review your will when any of the following events occur:

  • Marital status changes
  • A child is born
  • You move to another state
  • There is a significant change in the value or character of your assets
  • There is a change in intended beneficiaries
  • A beneficiary dies
  • A guardian, trustee, or personal representative named in your will dies
  • There is a change in tax laws affecting federal estate tax deductions and calculations
  • Once every two-three years

If you believe a change to your will is necessary you should consult an attorney who is familiar with the probate code of the state in which you live. He or she will know how best to comply with various state requirements.
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What is the importance of estate planning?
Estate planning is the process of putting your affairs in order, with the goal of maximizing the benefits your assets can provide to you during your life, and to those you desire to benefit from it after your death. There are three objectives with estate planning:

  • To make sure that after your death, your assets pass to the people you designate, in a manner that will give them the maximum benefits
  • To reduce or eliminate the tax burden on your estate
  • To make sure your assets are passed to your beneficiaries without the necessity of probate

Isn’t estate planning mostly about reducing taxes?
No. Even for those with estates large enough to be subject to estate tax, minimization of tax should be coordinated to fit with your other non-tax goals.
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What does ‘probate’ mean?
“Probate” is the administration of the estate of a decedent through court proceedings. It is the method by which the rights of all parties are determined relative to the decedent’s estate. These parties would include heirs (those entitled to inherit by state law in situations where no will exists or the will does not cover all assets governed by the Probate Court), will beneficiaries, creditors, and taxing authorities. The proceeding effectively passes title to assets of a decedent to those entitled to them.
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What types of property is involved in the probate process?
Any and all property titled in the name of the person who died is subject to the probate process. Probate is the process of orderly transferring title to these assets from the name of the decedent
into the name of the beneficiaries, and providing creditors of the decedent an opportunity to assert their claims against the estate in order to get paid. Titled property such as automobiles and real estate pass through probate, as do non-titled assets such as furniture and jewelry.
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What is asset protection?
Asset protection is a preventative measure designed to protect a client’s assets from creditors. It is a form of risk management planning that involves a legal and ethical review of a client’s financial holdings, then the restructuring of those holdings to take advantage of various techniques and legal exemptions that seek to place those assets beyond the reach of potential creditors. In addition to insulating assets from creditor attack, asset protection planning can allow you to negotiate a favorable settlement with creditors from a position of strength.
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What is a “trust”?
A trust is a relationship in which a person, called a trustor, transfers something of value, called an asset, to another person, called a trustee. The trustee then manages and controls this asset for the benefit of a third person, called a beneficiary. An asset is any kind of property.
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What is a living trust?
A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.  A “living trust” is simply a trust you create while you’re alive, rather than one that is created at your death under the terms of your will. Different kinds of living trusts can help you avoid probate, reduce estate taxes, or set up long-term property management.
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Can a living trust reduce estate taxes?
A simple probate-avoidance living trust has no effect on taxes. More complicated living trusts, however, can greatly reduce the federal estate tax bill for people who own a lot of valuable assets. One tax-saving living trust is designed primarily for married couples with children. It’s commonly called an AB trust, though it goes by many other names, including “credit shelter trust,” “exemption trust,” “marital life estate trust,” and “marital bypass trust.” Each spouse leaves property, in trust, to the other for life, and then to the children. This type of trust can save up to hundreds of thousands of dollars in estate taxes, money that will be passed on to the couple’s final inheritors.
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What is estate tax?
Estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “gross estate.” Property that may be included in this may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Once you have accounted for the gross estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your “taxable estate.” These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.
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Can I avoid estate taxes by just giving away all my property before I die?
No. If you give away more than $13,000 per year to any one person or noncharitable institution, you are assessed federal “gift tax,” which applies at the same rate as the estate tax. Making gifts of $13,000 or less, however, can yield substantial estate tax savings if you keep at it for several years. Some other kinds of gifts are exempt from the gift/estate tax as well. You can give an unlimited amount of property to your spouse, unless your spouse is not a U.S. citizen, in which case you can give away up to $133,000 per year free of gift tax. Any property given to a tax-exempt charity avoids federal gift taxes. And money spent directly for someone’s medical bills or school tuition is exempt as well.
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