An updated, concise, well-drafted estate plan is one of the greatest gifts you can give to your spouse, your children, and your heirs. Have you ever thought about what would happen to your family should you die or become disabled? Dying without an estate plan can throw your heirs into a legal quagmire that can cost thousands of dollars in legal fees, taxes, and other costs that could have been avoided with proper planning. In addition, for families with children, a properly drafted and current will with a guardianship appointment is critical. Without a will, your children’s future will be left to the decision of the courts.
Estate planning, however, is much more than simply drafting a will. It includes instructions about asset distribution upon death, healthcare decisions (such as withdrawals of life support and the appointment of someone to make that decision), guardianship issues, and the very difficult choice of who will care for your children if you die. Income and estate tax issues and a host of other matters are also addressed. Many of these issues must be dealt with regardless of the size of one’s estate; estate planning is not limited to the rich. A well-crafted plan can give you and your family peace of mind for a lifetime.
Each year, Americans pay millions of dollars in unnecessary state and federal income and estate taxes, as well as needless probate fees. By planning your estate in advance, you can reduce if not eliminate this cost of dying as well as know that your estate will be administered the way you want it to be. At McCormick Law Group, our attorneys have extensive experience in estate planning and can help you develop a well-ordered estate plan. Contact our offices to discuss your estate plan needs.
Estate Planning Terms
Will: A will is the basic building block in estate planning. It can be as simple as a basic statement of what you have and where you want it to go, but it also can be a very complex document that is drafted to deal with myriad estate tax, trust, and probate issues. The will is also used to designate guardians for minors. It is important to know that a will is a public document upon your death, and costly probate proceedings are required to administer and distribute your estate.
Trusts: The trust concept can confuse many people, as well as some attorneys and accountants. At its very basic level, a revocable trust or living trust is an alternative to a will. Like a will, a living trust will distribute your estate according to your wishes, but assets held in trust are not subject to probate upon your death. In addition, it is a completely private document. In order for the trust to be effective in avoiding probate, it must be funded. If you use a living trust, it is essential to the success of your estate plan that your assets be effectively transferred into your trust.
- Credit Shelter Trusts (also called bypass trusts): A credit shelter trust is a powerful weapon in avoiding estate taxes. Upon the death of the first spouse, the applicable credit amount is placed into this trust and passes tax-free to your children when the surviving spouse dies. With careful investing, you can shelter substantial amounts of estate assets by use of a credit shelter trust.
- QTIP (Qualified Terminable Interest Property) or Martial Trusts: These trusts are beneficial when you have children from a previous marriage or, in large estates, if there is a chance that the surviving spouse might remarry. These trusts, when properly drafted, ensure that the assets earned while you were alive will qualify for the marital deduction, but still guarantee that your children cannot be disinherited by the surviving spouse (often unintentionally).
- Irrevocable Life Insurance Trusts (ILIT): These trusts are designed to hold life insurance and, when properly drafted, allow the proceeds of life insurance policies to pass to your children free from estate tax. Today, with more people owning higher-value insurance policies, ILITs are serving an important role in estate planning.
- Children’s Trusts or 2503(c) Trusts: These trusts allow parents or grandparents to transfer wealth to children and thus save estate taxes without the fear that the children will misuse the finds and when properly drafted can result in substantial income tax benefits. Section 2503 of the Internal Revenue Code allows for such trusts, and your state’s trust laws will govern the trusts.
- Advance Directives: Advance Directives, such as Living Wills and Healthcare Powers of Attorney, are important planning tools to relieve your family of the burden of making healthcare decisions for you when you are incapacitated.