Most individuals understand that wills and living trusts are effective estate planning tools. A will is a written document that clearly sets forth your intentions on how your property is to be divided upon your death. A will also appoints an executor, to oversee the administration of your estate and, in the event you have minor children, your will can nominate a guardian to ensure their care.
A living trust is created while your alive – hence “living” trust – and is an arrangement in which an individual, known as a trustee, holds legal title to property for the benefit of another person, known as a beneficiary. A living trust allows individuals to pass property without being subject to the control of the probate court upon death.
In addition to wills and living trusts, there are other ways for property to pass as ones death. The following is a summary of some of those options.
Life insurance is an insurance policy on someone's life and, upon the death of the individual, will pay money to the policy beneficiaries. Beneficiaries may be a spouse, children, other family members, or friends, and depending on the policy, organizations or causes. Since life insurance is based in contract, it is not a probate asset and, therefore, is unaffected by intestate succession or a will.
Another benefit of life insurance is that the proceeds can pass free of estate taxes. In order to do so, if the insured person places ownership of the policy into an irrevocable trust, then the trust owns the policy – as opposed to the insured person – and any proceeds will not be “probate assets” subject to estate taxes. Setting up such a trust is a great way to achieve tax savings, however, doing so requires great care as there are specific regulations that must be followed such as when they can be created or who can serve as a trustee. Not following the rules could result in paying estate taxes on the proceeds.
Bank and Retirement Accounts
Money in brokerage accounts, retirement accounts, and pension plans are not probate assets and, therefore, pass without the oversight of probate court. Settings up these accounts typically require naming of a beneficiary and to whom will receive the proceeds upon death. As you can imagine, it is important to make sure the account beneficiaries are kept up-to-date, as many people have accounts that were set up a long time ago when their personal and family situation was different.
Another way to pass property outside of probate court is through joint ownership with survivorship rights. “Joint tenancy with the right of survivorship” is a way for individuals to hold an interest in property and, upon death of one of the joint tenants, the property passes to the remaining joint tenants.
Gifts given to family, friends or charities while you are alive are not a part of your estate since you no longer have an interest in the gift. When making gifts, it’s important to know that large gifts (over $14,000 per recipient in 2014) can be subjected to a gift tax. However, certain gifts made to your spouse, charities, and tuition or medical expenses you pay directly to a medical or educational institution for someone, are not taxable.
In addition, many people also arrange for “planned gifts” to charities as part of their estate planning activities. Planned gifts to charities often have the additional benefit of providing tax deductions in the tax years when the gifts are made. Because there are many variations of planned gifts and they typically involve complex strategies, legal assistance is vital when including planned gifts as part of your estate planning.
Estate plans need to be reviewed periodically. This review should also include thinking about the contents of life insurance policies, bank accounts, retirement accounts, joint tenancy property, and gift giving so that these can be prepared the way you want, updated as needed, and coordinated with each other.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.