Estate Planning

Beyond the Basics - a Trio of Considerations for Succession Planning

By Gregory Herman-Giddens

When doing estate planning, one needs to consider to whom to leave one's property, which is usually not much of a problem.  Next, one must decide who will be in charge of the administration the Will - the executor .  This choice is sometimes more difficult, but even without suitable family or friends, a professional or corporate fiduciary can be named.  Once these decisions are made, the very simplest of wills can be created.

However, a simple will does not address three very important estate planning considerations dealing with protecting assets and family members:

1. Estate Taxes - currently estate taxes are an issue for estates over $2 million.  What many people don't realize is that virtually everything they own is taxable.  The most common misconception is that life insurance is tax free.  This is generally true for income tax purposes, but not for estate tax purposes.  The combination of life insurance face value, retirement plans and equity in real estate put many couples over the exemption amount.  Without proper planning property roughly 50% of the property over $2 million will go to the government (45% federal tax plus NC estate tax).   Also, in 2011 the estate tax exemption will be reduced to $1 million.
2. Probate Avoidance - Even the most sophisticated Will does not avoid probate for property passing under the terms of the Will.  The probate process, governing by the court, can be lengthy and expensive.  Living Trusts can keep matters out of the court and save time, money and hassle.   As a rule of thumb, I recommend Living Trusts for those who have probate assets of $200,000 or more.  An example of a probate asset would be a brokerage account in one's sole name.
3. Asset Protection - Leaving an inheritance to someone outright makes things simple, but once that person receives the assets, there is no protection for the inheritance.  The assets could be lost to bad judgment, creditors, or divorcing spouses.  I urge my clients to consider leaving assets in trust, even to their spouses.  The protection offered can be invaluable in case the unexpected happens.  The trusts can be designed to be very flexible, and the beneficiary can even be a trustee.

As you can see, it pays to look beyond the basics when developing an estate plan.

Full post as published by North Carolina Estate Planning Blog on May 16, 2008 (boomark / email).