Who is Going to Get the Bulk of Your Estate?
Is the estate you spent a lifetime accumulating and/or conserving going to be reduced significantly by the time your heirs receive it?
Only action now on your part will help to ensure your heirs receive the estate you intend. Ill-advised or misguided action, or complete inaction, may allow taxes and probate to take a large portion of your estate and allow someone else to determine how your estate is distributed. Your estate is the wealth you have accumulated during your lifetime. This could include real estate, livestock, machinery, stocks, bonds, cash, retirement plans and anything else you own. To conserve your estate, you must achieve two goals:
- manage your estate during your lifetime and
- arrange for distribution upon your death.
By taking the necessary steps in estate conservation, you can avoid conflicts among your heirs, reduce delays and expenses by dealing with these issues now, and you can make the decisions about what you want to do with your estate.
There are several decisions to make when deciding how to conserve your estate.
- Choose the right attorney. Work with one you feel comfortable with, who takes your issues seriously, and who deals with estate planning on a daily basis.
- Select the people to receive your assets.
- Decide how and when your heirs will receive inheritance.
- Select who will manage your estate (i.e., executor, trustee, etc.).
- Take action now to minimize your estate settlement costs. Avoid probate Most generally, the courts will handle your estate if you do nothing. The probate process is time consuming, costly and very public. Often, probate can cost from 5 percent to 8 percent of your gross estate and can take from six months to a year or more and your heirs will have to wait for the bulk of the estate until after probate. Reduce the tax burden Federal tax rates can go as high as 55 percent on taxable estates.
There are a couple of exceptions to estate taxes.
- Unlimited exemption on transfer of assets between spouses.
- Unified Gift and Estate Tax Credit-Amount of assets that may be excluded from estate taxes.
What additional information do you need?
- An estimate of your estate tax liability.
- Can or do you want to make annual gift transfers? An annual gift tax exclusion allows you to transfer up to $10,000 per person to any number of individuals free from federal estate and gift taxes.
The decision of how to distribute your estate is very important. But generally, there are three basic ways this distribution will take place.
- Electing to do nothing - the most common way of estate transfer. Again, the problem with this approach is that it is costly and someone else will make the decision for your estate.
- Distribution of your estate through the use of a will - A properly drafted will controls the distribution of your estate, minimizes fees and taxes and ensures probate.
- Establish a trust - The use of a trust can control the distribution of your estate, minimize fees and taxes, and many trusts can completely avoid probate.
This information is a brief outline of the basic concepts of estate planning. To deal with these issues in detail, it takes a person trained in estate planning to work through the difficult issues. Make sure it is someone who is willing to work with you and your family to reach the appropriate plan.
Dealing with estate issues can often be an emotional roller coaster for families one group wanting to maintain control and not willing or able to let go of the operation, and at the same time the next generation wanting to do things their way. Many families have broken up over these very issues, so it is imperative that lines of communication be established so that the process will allow for the appropriate distribution of the estate, and the estate transfer process does not come to a halt because no one is willing to deal with the difficult issues.