You work hard all your life to make ends meet, and if possible, set aside money for people you care about. Developing an estate plan can help ensure that your wishes are carried out after you’re gone.
An “estate” refers to the value of all the assets you own. Such tangible assets may include investment securities, real estate, bank accounts and the value of life insurance policies, among others.
An estate plan may be created to manage your assets should you become disabled during your lifetime. An estate plan can also outline how your assets will be distributed after your death and who will be put in control of the estate. Without an estate plan, the courts may take control of your estate and distribute your assets as they see fit.
The federal estate tax exemption amount is $5.12 million in 2012. In other words, if you were to die in 2012 and your estate was worth more than $5.12 million, you would incur federal estate taxes on any amounts in excess of $5.12 million.
There are several ways to reduce the value of your estate, including annual tax-free gifts of $13,000 to anyone you wish. With some forward planning, your beneficiaries can enjoy their gifts sooner, and Uncle Sam won’t get as much of your hard-earned estate.
You can also reduce income and estate taxes by putting assets into an irrevocable living trust. A trust is an agreement in which you (the grantor) transfer your estate to somebody else (the trustee) for the purpose of benefiting one or more third parties (the beneficiaries).
Income taxes on revenue-generating assets placed in the irrevocable living trust are paid by the trust itself, not by you. In addition, the assets in the trust are not considered part of your estate and are therefore not subject to estate taxes when you die. However, “irrevocable” means that generally you cannot change beneficiaries or trustees once they are chosen, and you relinquish control of your assets once they are placed in the trust.
Estate planning can help you secure the future of your beneficiaries. But determining your best course of action also requires a comprehensive evaluation of your financial situation and long-term goals. Be sure to consult your tax advisor or attorney to determine the level of estate planning that is appropriate for your situation.
Gary S. Williams, CFP, CRPC, AIF, is president of Williams Asset Management at 8850 Columbia 100 Parkway, Columbia, Md. He is an investment adviser representative with/and offers securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 410-740-0220 or Gary@WilliamsAssetManagement.com. This communication is strictly intended for individuals residing in the states of: Arkansas, California, Colorado, Delaware, Florida, Kansas, Massachusetts, Maryland, Maine, Michigan, Missouri, North Carolina, New Jersey, New York, Ohio, Pennsylvania, Utah, Virginia, Wisconsin and West Virginia. No offers may be made or accepted from any resident outside these states due to various state requirements and registration requirements regarding investment products and services.