Estate Planning Mistakes - Number Twenty-Five

For those with Federal Estate Tax exposures (for 2011 and 2012 it is 5 million/10 million for married couples), you as well as your spouse should have a credit shelter trust. The Credit shelter trust/By-pass trust should be properly funded. This requires that each couple have sufficient assets in their name alone. Those assets would fund the Credit shelter trust/By-pass trust upon the death of a spouse.

If there are not sufficient assets to fund the Credit shelter trust/By-pass trust at the death of the first spouse to die, then the surviving spouse will have to disclaim a portion of his or her inheritance to allow the funding to occur. A qualified disclaimer must be executed within 9 months of the date of death of the first spouse to die.

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Estate Planning Mistakes - Number Twenty-Four

Do Not Fail To Plan for Federal Estate Tax. For the next 2 years, 2011 and 2012, those whose estates are under 5 Million Dollars (10 Million for married couples) will not be subject to the Federal Estate Tax. This could be stay the same, be raised or reduced in 2013. It would be a mistake not to address the potential exposure your estate might have to the Federal Estate Tax. This tax currently would be 35% of the estate. It was even higher in the past so it is not a tax to be taken lightly.

So, make sure your estate planner explains your potential exposure. If your estate is close to the amount or over, you want to make sure you have a Credit Shelter/ By-Trust in place. This type of Trust will allow you to avoid and in some cases eliminate the Federal Estate Tax.

Contact us at http://www.ythlaw.com/ for expert estate planning advice that will save you money on taxes and preserve your estate for distribution in accordance with your wishes.

Rethinking Your Estate Plan - Question 3

The article from Money Magazine shared 5 questions to ask when rethinking your estate. Today I share the 3rd question presented in the article.

QUESTION 3: ARE YOUR ESTATE NEEDS SIMPLE OR COMPLICATED?

"Most people need only a simple will or living trust (which helps you avoid the cost of probate). But if you want to put conditions on your bequests, you definitely need a trust. Take the example of a woman who had kids, divorced, and remarried. Through a qualified terminable interest property trust, she can make sure her spouse has enough income if she dies first but preserve the bulk of her assets for her kids." If your estate is large enough that you face taxes (either federal or state), you may need to consider one of these popular options:
"A bypass trust, also known as a credit shelter trust. It lets a couple essentially double their estate-tax exemption. Let's say you're the husband and you die first. Your assets fund an irrevocable trust for the kids, up to the estate-tax exemption level (we'll assume it's the current $3.5 million). Any remaining assets go to your widow in a separate trust. To make sure she won't run out of money, set up the trust so she can receive income from the kids' trust and tap the principal for needs such as medical costs.
The big payout: When she dies, she can pass on $3.5 million in assets tax-free, on top of the $3.5 million you passed to the kids in the bypass trust. And this arrangement ensures that your kids - rather than some guy your widow winds up marrying later - get the money.
A grantor-retained annuity trust (grat). It works like an annuity: You put money in and receive an annual payout based on the IRS-assumed interest rate at the time you set up the trust (it's currently 2.4%). At maturity any appreciation above that goes to designated beneficiaries, such as your children, tax-free.
Now that both interest rates and asset values are low, guess what? There's a good chance that the contents of the trust will grow more quickly than 2.4%, with plenty of money left over."

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How do I plan in uncertain times?

Question:
Can you effectively plan your estate in the midst of uncertainty with Federal Estate Tax law? I am aware that Congress is considering bills that would change the Federal Estate tax. How can you effectively plan your estate when the tax laws are constantly changing?

Answer:
Flexibility is the key when planning ones estate during change and uncertainty. We do not have a crystal ball to see the future. Therefore, we need the next best thing.In my opinion, that would be control over the timing of implementation of designated estate planning tools. For example, funding the Credit Shelter Trust (used to preserve the exclusion amount of the first spouse to die) may create a burden for the surviving spouse if the estate is not large enough to justify the use of the Credit Shelter Trust. However, if the instrument is not drafted to provide some flexibility then funding of the Credit Shelter Trust may be mandatory. An alternative would be the use of a Disclaimer Trust. When the first spouse dies, an assessment can be made at that time whether to disclaim all or part of the inheritance. Only that amount, if any, would be placed in the Disclaimer Trust. The terms of the trust would provide for the surviving spouse during their lifetime. Afterwards, the funds would be distributed to the children or the remainder beneficiaries.

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