Estate planning provides families a great opportunity to be prepared for unexpected incapacity and death. An estate plan can include many different types of documents, including wills and trusts. In fact, there are so many different tools that will allow you to have a comprehensive and customized estate plan. Here are some of the top estate planning techniques you should discuss with your estate planning attorney.
Last Will and Testament
The last will and testament is a very important part of an estate plan, and everyone should consider having one. Anyone who does not have a comprehensive estate plan, should at the very least, have a will. Yet, only 30% of Americans have an executed will. If you are wondering who should have a will, then at least you are considering planning for your future, and that is a good thing.
Durable Power of Attorney
When you create a general power of attorney, you are providing your agent with broad authority over your medical and or financial affairs. If your power of attorney is limited, on the other hand, then your agent’s authority will be limited to specific matters, as spelled out in the power of attorney document. For instance, you can create a power of attorney for your business partner, giving her access to assets only for the benefit of the business, in case you become incapacitated. You could also give your agent the power to manage your rental property temporarily, while you are out of the country. Powers of attorney have many benefits.
Revocable Living Trust
A “living trust” is a trust that becomes effective during your lifetime, as opposed to only becoming effective after your death. Like other types of trusts, property transferred to a living trust will be held and managed by your trustee until it is time to transfer the trust property to your heirs. Because a living trust is revocable, you retain the ability to make changes to the terms of the trust, at any point during your lifetime. In fact, it is strongly recommended that you periodically review the terms of your trust to determine if it needs to be revised.
Irrevocable Life Insurance Trust
An ILIT is a very useful tool in comprehensive estate planning. Generally speaking, an irrevocable trust transfers all ownership rights in the trust property to the trust itself, without retaining a right to revoke, terminate or modify the trust in any material way. If you transfer an insurance policy into an irrevocable trust, you have just created an ILIT. The true benefit of an irrevocable life insurance trust, is keeping the proceeds of the life insurance policy outside of your taxable estate. Making gifts to the trust, to fund the insurance premiums, can also reduce your taxable estate. Upon your death, the remaining assets in the trust (the insurance proceeds) are available to your beneficiaries, income-tax- free.
Charitable Remainder Interest Trust
Charitable trusts are irrevocable, which means once they have been executed, they cannot be changed. Once you transfer property to a charitable trust, you no longer have legal control over that property. A charitable remainder trust is the most common estate planning tool for individuals who want to make charitable donations. Once the trust is established, the property can easily be transferred to your chosen charity, upon your death. For the charitable trust to provide tax benefits, the charity must be approved by the IRS. Approved charities are those that are considered tax exempt under the Internal Revenue Code.
Annual Gift Tax Exclusion
When someone transfers ownership of their property, the Internal Revenue Service will impose what is known as a “gift tax.” According to the IRS, a gift is “any transfer to an individual, either directly or indirectly, where full consideration is not received in return.” In 2017, you are allowed to exclude a maximum of $14,000 per recipient for gifts. This simply means that you can give away as much as $14,000 during the year to anyone you choose and to as many people as you choose, without any tax consequences. These gifts can be to anyone, including strangers. If you and your spouse give a joint gift to someone, you can combine your gift tax exclusion. So, the maximum you could give to one person, during the year, as a joint gift would be $28,000.
The purpose of estate planning is to prepare clients and their families in case of incapacity and death. There are many different estate planning tools and techniques to choose from, depending on your future goals. A Los Angeles estate planning attorney can help you choose the right techniques for your estate plan.
If you have questions regarding the top estate planning techniques, please contact the experienced attorneys at the Schomer Law Group either online or by calling us at (310) 337-7696.