BASICS OF ESTATE PLANNING

     Because estate planning is the creation of a definite plan for the control and management of one's assets during life as well as their distribution after death, I prefer to call it “life planning”.

     Ownership of the assets you accumulate during life must be transferred, either during your life or at your death, to a living being or legal entity. The most common way to transfer assets at death is by Last Will & Testament. If you die without a Will it is likely a probate proceeding will be required to transfer title to your assets. The court will appoint the personal representative and your assets will be distributed according to state law. If you have minor children, a custodian or guardian may be appointed. In Florida, if you have no heirs your assets will go the State. A Will is beneficial to designate a personal representative and direct who will receive particular assets and Court generally will carry out your wishes. This may help to avoid disputes among your heirs. You can also name a guardian of minor or incapacitated beneficiaries. And, if you have no heirs, you can prevent the State from getting your assets. Generally, however, a Will alone will not avoid probate.

     What is probate and why should you try to avoid it? Probate is a legal court proceeding to prove the Will and distribute your assets upon your death. Whether it is required depends upon what estate (life) planning has been done. If you have no will, or only a Will, probate will generally be required unless all of your property is owned jointly with right of survivorship, you own only exempt personal assets or all of your assets are put into a trust.

     There are two types of probate proceedings: after death estate administration and lifetime probate, known as guardianship, which may occur if you become incapacitated or incompetent. Disadvantages of probate are: time - usually taking 6 months to one year or longer; cost - between 6 and 7 % of the gross value of your estate, and; publicity - proceedings are public record.

     Another important planning factor is the impact of estate and gift taxes is. Estate taxes are imposed at death while gift taxes are imposed on lifetime transfers. The Federal estate and gift tax rate ranges from 37% to 55% of taxable value of the assets you own at your death. (Depending on your state of residence, a state estate tax may also be imposed). Each individual is permitted to transfer a certain amount of assets free of Federal estate and gift taxes. In 1999, this amount is $650,000 increasing incrementally to $1 million by year 2006. In addition, certain nontaxable gifts may reduce the taxable value of your estate. Married couples may be able to transfer twice as much with effective use of the marital deduction and unified credits.

     One of the most effective ways to avoid probate and reduce estate taxes is to establish a trust by a written instrument naming a trustee to hold and manage your property for you and your beneficiaries' benefit. You must choose a trust that will achieve your objectives. The Revocable (also called Living or Inter Vivos) Trust can be changed or revoked during life, assets can be added or deleted and, the trustee and beneficiaries can be changed. The trust property is not subject to probate because the assets are held in the name of the trustee. However, the assets will still be included in your estate for estate tax purposes. An Irrevocable Trust cannot be changed or revoked at any time, assets can be added but not deleted, and the trustee and beneficiaries cannot be changed. The major benefit is that the assets are not included in your estate and are not subject to estate taxes. A Testamentary Trust is set up at death through direction in your Will and is irrevocable upon creation requiring a probate proceeding to implement it.

     The most popular trust is the Revocable Trust. It can be changed or revoked during life and, since you name yourself as trustee, you continue to control and use the trust assets. A successor trustee only takes over at your death or incapacity (no need for guardianship) and holds or distributes assets according to the terms of the trust instrument, without probate and absent public review. Further, a properly implemented estate plan that includes a trust can reduce, or even eliminate, estate taxes.

     A complete estate plan also should include advance directives including a Durable Power of Attorney, Designation of Health Care Surrogate and a Living Will. A number factors enter into the planning of your estate including, your age, marital status, children and their ages; value, type and location of your assets; and your objectives.

     If you already have an estate plan, it should be reviewed periodically, at least every 5 years or when there have been major life changes. Since each situation unique, whether you are updating your current estate plan or implementing a new one, you should seek the advice of an experienced estate planning professional.

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