Estate Planning

A trust is a set of instructions created by a legal arrangement that names an individual or institution responsible for distributing assets to beneficiaries. A common reason for setting up an estate plan is to save money on tax liability when the estate is passed on to its recipients. As of 1999, only the first $650,000 of your client's estate can be transferred tax-free. The rest is subject to estate taxes and they can wind up leaving a lot less to their beneficiaries than they thought they would be. Estate plans take advantage of certain tax avoidance techniques such as the following:

  • A tax by-pass trust that holds property for your client's children while providing for their surviving spouse
  • A gift program to take advantage of the current $10,000 per year per person gift tax exclusion
  • Distribution of shares in a Family Limited Partnership to take advantage of minority and lack of marketability valuation discounts

A gift which incurs gift tax now so tax in the future in the form of an estate will be less

There are all sorts of trusts that each serves separate and unique purposes. A living trust is an estate-planning tool that starts working during your client's lifetime. In establishing a living trust, they are essentially reregistering their assets to the trust and the trust becomes the owner of their assets. That way when your client die, since the assets are owned by the trust and not them, probate will be avoided.

The credit shelter trust is a revocable living trust that contains a provision for the creation of a credit shelter upon the death of the first spouse. Credit shelter trusts are usually established to provide for a spouse, children or other beneficiaries as well as to reduce the amount of estate tax due upon the death of the second spouse. This type of trust can be designed to pay income from the assets in the trust to the surviving spouse or other beneficiary after the death of the first spouse. This trust also allows the grantor to take advantage of the Unified Tax Credit; therefore as long as the value of the trust does not exceed $650,000, it can be passed on to the beneficiaries free of federal estate tax.

A marital trust is used to protect the property your client intends to pass to their spouse at the time of their death. The only beneficiary of their estate upon their death can be their spouse in this type of trust. Assets in a marital trust avoid probate at the time of their death and at the time of their spouse's death. The terms of the trust can determine how much control their spouse has over the assets in the trust.

In order to set up a trust, your client will need the assistance of a qualified estate planning attorney to establish a document trust. They should choose an attorney who specializes in the fields of trusts, wills, probate and estate planning as they will be able to provide your client with the most sound legal advice. Often the expense incurred in retaining an attorney to help prepare and put a estate plan into place will cost your client a lot less in the long term compared to what they and their family could stand to lose with no or poor planning. So who should have an estate plan set up? Basically, an estate plan can benefit almost everybody. If your client's net worth is less than $650,000, they do not have to worry as much. However, if your client meets any of the following criteria, they should consider setting up an estate plan.

  • They are the parent of minor children
  • They have property that they care about
  • They care about their health care treatment