Important Questions About Estate Planning

What Happens If You Die Without A Will?

Studies have shown that over 55% of Americans will die without a will or estate plan in place. If you die intestate (without a will), then your state’s laws of descent and distribution will determine who receives the property by default. These laws differ greatly from state to state, but typically the distribution would be to your spouse, children, or to other family members. These laws of descent and distribution reflect the state’s best guess as to how most people would build their states, though this plan may or may not reflect your actual wishes. A will allows you to alter the state’s default plan to suit your personal preferences.


What Types Of Gifts Are Subject To The Gift Tax?

Any property or asset that’s given as a gift is subject to federal tax gift. That being said, there are many exceptions to the rule, including:
-Giving any number of people up to $14,000 each per year (considered an ‘annual exclusion gift’).
-Pay any amount toward another person’s tuition or medical expenses – as long as the bill is paid directly to the education or medical provider.
-Any amount to your spouse (as long as they are a U.S. citizen - some terms may apply if not)
-Any amount to charity

Even if you make a taxable gift, you don’t have to pay a tax until you exhaust your gift tax exemption amount (this exemption currently allows for $5.25 million of taxable gifts to be made during your lifetime before a tax payment is required)


What Amount Of Assets Can I Pass At My Death Without Incurring A Federal Estate Tax?

Though you have a $5.25 million gift tax exemption during your lifetime, the accumulated value of your gifts is included in your $5.25 million estate tax exemption. Thus, if you’ve given $1 million in gifts throughout your life, you can pass on $4.25 million at your death without incurring a federal estate tax. That being said, most states also impose state inheritance and estate taxes as well, so this amount can vary drastically.


When Should I Set Up A Personal Living Trust?

There are several situations – many unrelated to taxes – for setting up a personal trust while you’re alive. These trusts are often called living trusts or revocable trusts. Some reasons to set up a revocable trust include:

-Ensuring a seamless management of your assets in the event of incapacitation or death,
-You own property in more than one state, which avoids the possibility of opening probate proceedings in each state,
-You want to avoid your state’s probate process,
-You want your estate plan to be kept private and not made a matter of public record.


When Should I Have A Personal Trust Created Upon My Death?

There are also several situations where it’s encouraged to have a trust created upon your death. Some of these situations would include:

-You have a minor child with special needs or other disabilities, which prevent them from financially taking care of themselves.
-You’re concerned that your beneficiary may not be able to manage the inherited assets
-You’d like to protect your assets from any creditors a beneficiary may have
-You want to provide a structure for what purposes your beneficiary should receive the assets
-You’d like to minimize the amount of estate taxes that might have to be paid at the death of the beneficiary.
-You want to ensure that the trust assets make it to the right, specified beneficiaries.


What Are the Duties Of Trustees?

There are many responsibilities of trustees, so make sure you know everything that is required from them prior to picking yours out. A trustee must:

-Manage the assets in your trust. This means objectively evaluating and managing the assets of the trust and ensuring that they meet the needs of the trust beneficiaries in an appropriate manner based on the terms.
-Account for trust transactions. The principal and income of a trust typically must be handled separately, and both receipts and distributions should be accounted for.
-Follow all the terms of the trust while complying with all federal and state requirements. Arguably the most important responsibility of a trustee is to follow the terms of the trust. The trustee may also have reporting requirements to the courts or trust beneficiaries, as well as federal and state tax-filing responsibilities.


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Revised: Feb. 11, 2016, 9:12 p.m.
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