Basic Estate Planning
Have you protected your heirs by completing your estate planning? Our firm will guide you to the best estate plan for your family based on your individual circumstances.
Typically, a complete estate plan will include the following documents:
- Living trust.
A revocable “living” trust will enable your heirs to avoid an expensive and time-consuming probate. The trust will provide for the distribution of your assets according to your wishes after your death. If appropriate, a living trust may also include trusts for children which allow for the control of their assets until they reach a more mature age. A special needs trust may be appropriate for a beneficiary who is receiving public benefits. Special needs trusts are discussed here. A living trust may also provide for the reduction of estate taxes for a larger estate. Estate taxes are discussed below.
- Pour over wills.
These wills provide for the disposition of your assets if they are not titled in your trust at your death.
- Powers of Attorney for health care and financial affairs.
These documents allow you to appoint agents to manage your health and financial affairs in the event you are incapacitated and unable to make decisions for yourself.
- Trust funding documents.
If you elect to establish a living trust, deeds will be prepared to transfer your real property assets to your trust. Other documents and instructions will be prepared to assist you with the transfer of all other assets into the trust.
Other documents may be used for larger estates or in business succession planning.
Gift and Estate Tax Planning
In 2016, you can give away as much as $14,000 per year (the “annual exclusion amount”) to as many people as you wish, without any estate or gift tax consequences. In addition to the annual exclusion amounts, you also can make the following gifts without triggering the gift tax:
- Gifts to a charity.
- Gifts to a spouse.
- Direct payment to an educational institution for tuition only. Books, supplies and living expenses do not qualify. This is a good way to benefit grandchildren.
You can make gifts other than those listed above; however, this type of gifting is more complicated. You will not have to pay gift taxes unless you give away more than the amount which will pass free of estate tax, which, in 2016, is $5.45 million. You will have to file a gift tax return to report these gifts to the IRS. It is very important that you consult with your attorney and accountant before making gifts of more than the annual exclusion amount.
On January 2, 2013, a new tax law, the American Taxpayer Relief Act of 2012 (ATRA), went into effect. ATRA made important changes in the estate and gift tax laws. Now, $5 million per person, indexed to inflation, can be passed free of both gift and estate taxes. In 2016, the amount that can pass tax free is $5.45 million. In addition, each taxpayer can transfer $5 million, indexed to inflation, to grandchildren, free of the generation skipping transfer tax.
As a result of these changes to the federal estate and gift tax rules, the majority of Americans will not be subject to the federal estate tax. In addition, Californians are also not subject to any state inheritance tax. However, if you do have a larger estate, our firm can assist you in minimizing estate taxes when you transfer assets to the next generation.
Business and Farm Succession Planning
Business owners face special challenges in planning for the transfer of their businesses to the next generation. They may want to transfer the operation to children who have built their careers in the business, yet they also want to be fair to the children who no longer are involved with the operation. The family, as a whole, should consider:
- How and when will the parents retire?
- Will the business be continued after the death of the parents? If so, by whom?
- Will the children, whose careers are in the business, inherit a viable operation?
- Will the non-business heirs be treated equitably?
- Will estate taxes and costs be minimized so the operation can continue?
The answers to these questions are unique to each family. This planning is not easy. The family must discuss the expectations of various family members, and, with knowledgeable legal and tax advisors, put together a succession plan. If no planning is done, the family’s vision for the future may not be realized.
We understand the special concerns of business owners, and we work with them and their accountants and other advisors to guide them into developing the succession plan appropriate for each operation.