Life Advice – Planning Your Estate
A primary purpose of estate planning is to distribute your assets according to your wishes after your death. Successful estate planning transfers your assets to your beneficiaries quickly and usually with minimal tax consequences. The process of estate planning includes inventorying your assets and making a will and/or establishing a trust, often with an emphasis on minimizing taxes. This webpage provides only a general overview of estate planning. You should consult an attorney, or perhaps a CPA or tax advisor for additional guidance.
Do I Need to Worry?
You may think estate planning is only for the wealthy. If your assets are worth $1,000,000 or more, estate planning may benefit your heirs. That’s because generally taxable estates worth in excess of the amounts in the chart below may be subject to federal estate taxes, with rates as high as 45% to 55% of the taxable estate.
Adding up the value of your assets can be an eye-opening experience. By the time you account for your home, investments, retirement savings and life insurance policies you own, you may find your estate in the taxable category.
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Even if your estate is not likely to be subject to federal estate taxes, estate planning may be necessary to be sure your intentions for disposition of your assets are carried out.
The first step in estate planning is to inventory everything you own and assign a value to each asset. Here’s a list to get you started. You may need to delete some categories or add others.
Other real estate
Savings (bank accounts, CDs, money markets)
Investments (stocks, bonds, mutual funds)
401(k), IRA, pension and other retirement accounts
Life insurance policies and annuities
Ownership interest in a business
Motor vehicles (cars, boats, planes
Other personal property
Once you’ve estimated the value of your estate, you’re ready to do some planning. Keep in mind that estate planning is not a one-time job. There are a number of changes that may call for a review of your plan. Take a fresh look at your estate plan if:
The value of your assets changes significantly.
You marry, divorce or remarry.
You have a child.
You move to a different state.
The executor of your will or the administrator of your trust dies or becomes incapacitated, or your relationship with that person changes significantly.
One of your heirs dies or has a permanent change in health.
The laws affecting your estate change.
How Estates Are Taxed
Federal gift and estate tax law permits each taxpayer to transfer a certain amount of assets free from tax during his or her lifetime or at death. (In addition, as discussed in the next section, certain gifts valued at $10,000 or less can be made that are not counted against this amount.) The amount of money that can be shielded from federal estate or gift taxes is determined by the federal unified tax credit. The credit is used during your lifetime when you make certain taxable gifts, and the balance, if any, can be used by your estate after your death.
Keep in mind that while you can plan to minimize taxes, your estate may still have to pay some federal estate taxes. What’s more, your estate may be subject to state estate or inheritance taxes, which are beyond the scope of this webpage. An estate planning professional can provide more information regarding state taxes.
Minimizing Estate Taxation
There are a number of estate planning methods that can be used to minimize federal taxes on your estate.
Giving away assets during your lifetime. Federal tax law generally allows each individual to give up to $10,000* per year to anyone without paying gift taxes, subject to certain restrictions. That means you can transfer some of your wealth to your children or others during your lifetime to reduce your taxable estate. For example, you could give $10,000 a year to each of your children, and your spouse could do likewise (for a total of $20,000 per year to each child). You may make $10,000 annual gifts to as many people as you wish. You may also give your child or another person more than $10,000 a year without having to pay federal gift taxes, but the excess amount will count against the amount shielded from tax by your unified credit. For example, if you gave your favorite niece $30,000 a year for the last three years, you would have reduced your unified credit by $60,000 (a $20,000 excess gift each year).
* The $10,000 annual gift tax exclusion will be adjusted for inflation, as measured by the Consumer Price Index (CPI) published by the Department of Labor. The increases will be in multiples of $1,000. This exclusion applies only to a gift of a present interest in property. Therefore, gifts made intrust generally will not qualify for this exclusion.
The marital deduction shields property transferred to a spouse from taxes. Federal tax law generally permits you to transfer assets to your spouse without incurring gift or estate taxes, regardless of the amount. This is not, however, without its drawbacks. Marital deductions may increase the total combined federal estate tax liability of the spouses upon the subsequent death of the surviving spouse. To avoid this problem, many couples choose to establish a bypass trust.
Bypass trusts or credit shelter trusts can give a couple the advantages of the marital deduction while utilizing the unified credit to its fullest. Let’s say, for example, that a married couple has a federal taxable estate worth $2 million (or $1,000,000 each). Using the marital deduction, if one spouse dies in 2002 the full $1,000,000 can be left to the other spouse without incurring taxes. However, when the second spouse dies in 2003 and passes his or her $2 million estate on to their children, taxes will be levied on the excess over the amount of assets shielded by the unified credit ($2,000,000–$1,000,000 = $1,000,000 subject to estate tax).
With a bypass or credit shelter trust, the first spouse to die can leave the amount shielded by the unified credit to the trust. The trust can provide income to the surviving spouse for life, then upon the death of the surviving spouse the assets are distributed to beneficiaries, such as children. This permits the spouse who dies first to fully utilize his or her unified credit. If the trust document is drawn properly, the assets in the trust are not included in the surviving spouse’s estate. Thus, the surviving spouse’s estate will be smaller and can also utilize the unified credit. In the example above, the surviving spouse’s estate would not have to pay federal estate taxes. Because both partners have made use of their unified credits, the couple is able to pass on a substantial estate tax free to their beneficiaries.
Charitable gifts are not taxed as long as the contribution is made to an organization that operates for religious, charitable or educational purposes. Check to see if the organization you want to give money to is an eligible charity in the eyes of the Internal Revenue Service. You, or your estate may be entitled to a tax deduction for contributions to a qualifying charity. Consult your tax advisor.
Life insurance trusts can be designed to keep the proceeds of a life insurance policy out of your estate and give your estate the liquidity it needs. Generally, you can fund a life insurance trust either by transferring an existing life insurance policy or by having the trust purchase a new policy.* To avoid inclusion in your estate, such trusts must be irrevocable—meaning that you cannot dissolve the trust or change the terms of the trust if you change your mind later. With proper planning, the proceeds from life insurance held by the trust may pass to trust beneficiaries without income or estate taxes. This gives them cash which may be used to help pay estate taxes or other expenses, such as debts or funeral costs.
* Transferring an existing policy may have gift tax consequences. Consult your tax advisor.
Estate planning is very complex and is subject to changing laws. This webpage by no means covers all estate planning methods. Be sure to seek professional advice from a qualified attorney, and perhaps a CPA or estate planner. The money you spend now to plan your estate can mean more money for your beneficiaries in the long run.
You can save a lot of money and potential chaos and hard feelings among those closest to you by preplanning how you want your assets managed when you are incapacitated, and how your property will be divided at your death.
Powers of Attorney
In Georgia, you can sign a durable power of attorney to appoint someone to handle your assets if you become incapacitated. At a minimum, a power of attorney should include the power to:
- Manage and transfer all assets
- Deal with the IRS
- Make gifts on your behalf
- Create and amend any trusts you set up
You don’t need to transfer any assets at the time you sign a power of attorney, but it’s a good idea to keep the person you’ve chosen informed about your ongoing financial matters.
You can also appoint a Durable Power of Attorney for Health Care to make health care decisions for you when you’re unable to do so yourself. This person can provide informed consent for treatment, or even refuse treatment for you.
Dying Without a Will
If you die without a will (known as dying "intestate") in Georgia, your assets will be divided amongst your immediate family. If you have a spouse but no children or parents, your entire estate will go to your spouse. If you have a spouse and at least one child or grandchild, your spouse shares equally with the children but will receive a minimum of one-third of your estate.
If you have children and no spouse, your entire estate goes to your children. If you have parents and no spouse or children, your entire estate will go to your parents. If your parents are no longer alive, your estate will go to your siblings.
Alternatives to a Will
Wills eventually become public after your death, with the details of what you owned and how much it was worth available to anyone curious enough to read the court file. As a result, many people look for more private ways to transfer their assets.
In Georgia, alternatives to making a will include:
- Life insurance policies or trusts
- Gifting cash or other assets before your death
- "Transfer On Death" ("TOD") or "Payable On Death" ("POD") bank accounts
- Holding assets by joint tenancy with right of survivorship ("JTROS"), with the assets transferring automatically to the other joint tenant at the time of death
- Holding assets through a tenancy in common, with each tenant having a divided interest in the property which can be independently sold
- Retirement plans and Individual Retirement Accounts ("IRAs")
- "Revocable living trusts" (sometimes called "grantor trusts"), giving all your assets to a trustee for management before your death
Making a Will
In Georgia, you can make a valid will if you are at least 14 years old and not under a legal disability. The will must be in writing and signed by you or by another individual in your presence and at your direction. Your will must be signed in front of two competent witnesses that are age 14 or older.
A Georgia lawyer who does a lot of estate planning can explain the consequences of some of the most basic choices you must make, such as whether property you want to leave to your minor children should be put into a trust at your death. For that reason, it makes sense to consult with a Georgia estate planning lawyer and have him or her draft your will, so that you don’t make costly mistakes or accidentally not accomplish what you intended.
Providing For Young Children
There are many kinds of trusts, but the most common is one you would set up for your minor children or incapacitated adult relatives for their care after you are gone and until they are old enough or well enough to take care of themselves. A parent can name a trustee to be in control of the finances and decide whether to sell or keep property, and manage assets such as real estate. The trustee, usually a family member or trusted friend, can be paid an hourly rate or a set monthly amount for their services out of the trust assets.
You will probably also want to name a guardian for your children, someone who would have physical custody of and take care of your children on a daily basis should you or your spouse be unable to do so.
"Probate" is the public process of:
- Filing and validating a will in court
- Paying all the debts and taxes of the deceased person
- Dividing up the assets according to the will or Georgia law
If you have no debts and no "titled property" such as real estate or vehicles to pass along to heirs, there may be no need for probate.
Probate lawyers generally charge by the hour, and they make sure everything gets processed according to the law.
A letter of last instructions is an informal document, and one of the most helpful things you can provide for your family. The letter should express your wishes following your death. The purpose of this letter is to give your personal representative or family member the information he or she will need concerning your personal and financial matters.
You don’t need an attorney to prepare it. Although this letter does not carry the legal weight of a will, it is very important because it clarifies requests to be carried out after your death. The letter provides essential information needed by the surviving family members, thereby relieving them of needless worry. Your family will be grateful for this information.
When writing your letter of last instruction use the following list as a guide and provide detailed information including: names, addresses, and telephone numbers.
Prepare a list of people to notify of your death. Include family members, acquaintances, and organizations. Also include professionals, your accountant, attorney, broker, employer, executor, financial institutions, insurance agents, newspapers to receive obituary information, Social Security Office (include Social Security Number and location of Social Security card), and the U.S. Department of Veterans Affairs, if appropriate.
Describe the arrangements you have already made and those that your family must make. Specify your wishes on the following (If pre-arrangements have been made give details.):
- Organ donations
- Autopsy if requested
- Public viewing
- Body disposal(detail any arrangements made)
- remains donated
- cremated (disposal of ashes)
- burial and location
- Type of service and location
- Funeral (open casket, closed)
- Flowers and/or donations (to whom)
- Where, specify memorial gifts or flowers.
List the number of death certificates that will be needed, usually six to twelve are needed. The funeral director or cremation service director will order as many death certificates as you request. The following is a list of institutions that will probably want a certified copy of the death certificate:
- Insurance companies (each company that insured the individual or his property will want a copy)
- Financial institutions (banks, credit unions, mortgage companies, brokerage firms, credit card companies)
- Pension fund(s)
- Social Security Administration
- The Circuit court in each county where the deceased owned real property
Pull together information the funeral director will need such as:
- your full name
- marital status
- spouse’s name
- date of birth
- father’s and mother’s names and birthplaces
- name of next of kin (other than spouse)
- length of residence in state and in United States
- military records/history
- Social Security number
- life insurance information
In your letter give the location of all of your personal documents including your will; birth, baptismal, and marriage certificates; communion and confirmation certificates; diplomas; military papers; naturalization papers; and any other documents such as divorce or adoption papers.
Tell where the registration and other papers for your automobiles and titled property may be found.
List all your checking and savings accounts by name and institution, address of the office where the account is located, the type of account, and the account number. Include the location of canceled checks and statements.
Be sure to give the location of your safe deposit box, a list of the contents, and where the key is located. Also provide the location and number of any post office boxes that you have. Tell where the key may be found or give the combination of the box.
List your credit cards by issuer and by card number. Request a copy of "Credit Card Safety Record" from your local county extension office or go on line at http://edis.ifas.ufl.edu/fy378 to make this task easier.
Debt You Owe
Make a list of all the debts owed to you; include full name, address, and telephone number of the debtor; payment terms; collateral; etc.
Give the location of the deed and mortgage papers on all property that you own. Provide information on taxes, liens, leases, etc.
List the contents of your house and location of household inventory, and appraisals. List the owners of all household items and what you want to happen to items you own.
List all of your insurance policies by type (life, auto, home, veterans medical, credit life), company name and address, policy number and insurance agent. Include a description of any loans that you have taken out against a policy and not yet repaid. Also include the location of each policy.
Make a list of all stocks, bonds, and other securities by certificate number, issuers, and cost. Tell where the documents are located and identify stockbrokers with name, address, and telephone numbers.
List all loans and other accounts that you must repay. Give full information on terms, payments, collateral, etc.
Provide a list of your personal effects and who is to receive each. Include such detail as to the complete name, address, and relationship of the person who will receive your golf clubs, gold watch, clothes, etc.
List possible sources of benefits such as Social Security, veterans, employee, fraternal association, credit life insurance. Include amount or estimated amount that can be expected from each source.
Include in your letter of last instructions the location of your income tax returns for the past five years.
Make a list of all the trusts that you have established. Give the name and address of each trustee and identify the type and amount of assets in each trust.
Provide the location of receipts, warranties, and other miscellaneous papers. Explain any unusual provisions of the will, such as disinheritance of a child or forgiveness of a debt.
Write your letter clearly so that even a stranger could understand it. Also be sure that your letter does not contradict your will. If you are in doubt check with your attorney. Since this letter describes your finances in detail give a copy of the letter to your personal representative and keep the original and copies in a safe place. Be sure to sign and date your letter of last instructions and dont keep it with your will.
SOURCE: University of Florida in an article by Josephine Turner