Living Trusts

Filed under Planning & Money

A living trust is a legal instrument which holds title to the personal assets of an individual person or family, including bank accounts, real estate, LLC and stock interests, etc. Like a will, a living trust contains your instructions for the distribution of all your assets after you die. A primary difference between a will and a trust is that a trust avoids probate, whereas a will does not. Probate of a will requires filing of a costly probate proceeding, newspaper publication notices, letters to all heirs even if disinherited and statutory waiting periods. Also, the records of the probate are public information.

Utilizing an attorney prepared living trust is a method of avoiding this expensive, intricate and confusing probate process. When a person’s assets are transferred to their living trust during their lifetime, probate is avoided entirely. After the person who established the living trust, who is called the Trustor, dies, the successor trustee(s), who are usually the adult children or relatives of the Trustor, distribute the trust assets to the designated named beneficiaries. Because the living trust eliminates probate and, often under many circumstances, can greatly reduce estate taxes, it is possible to pass on a much greater portion of your assets to your heirs.

It is a very common misconception that holding property in joint tenancy provides probate protections similar to a living trust, however this is not the case. Joint tenancy only avoids probate on the death of the first joint tenant, but the surviving joint tenant will be left with the same probate problem unless planning is implemented after the first death. This is usually not a good time for planning, due to the life changes and emotional stress and trauma associated with the loss of a spouse. In addition, joint tenancy can also cause a loss of the step-up in basis on inherited property, which can cause unnecessary capital gains taxes. In conclusion, the execution and funding of a lawyer prepared living trust, when both spouses are healthy, avoids probate and eliminates the possibility that a surviving joint tenant may be unable to accomplish future estate planning due to incapacity or an accident.

Benefits of a Living Trust:

• Probate is avoided, including multiple state probates if you own property in other states

• Probate entails public court proceedings which can last two years or more; whereas trusts are private and can be administered very quickly, which your heirs and successor trustee(s) will greatly appreciate
• The individual(s) who set up the trust are the trustee(s) during their lifetime and have total control over the trust assets, including the power to easily change or revoke the trust
• The trust for a married couple can be designed to maximize the estate tax exemption, which can result in a potential tax savings to the heirs of more than one million dollars
• The trust will not cause a change in income taxes; tax filings remain exactly the same throughout the life of the Trustor
• The trust can hold corporate stock or ownership interest of an LLC, so that the company and its assets will avoid probate
• Living trusts can be established for individuals, or as a joint trust for married couples, bringing all of your assets together under one plan
• Prevents court control of assets at incapacity or death
• Provides maximum privacy
• Quicker distribution of assets to beneficiaries
• Assets can remain in trust even after your death should you desire
• Can reduce or totally eliminate estate taxes
• Inexpensive, easy to set up and maintain
• Can be changed, modified, or cancelled at any time before the Trustor dies
• Difficult to contest
• Prevents court control of minors’ inheritances and guardianship proceedings
• Can protect dependents with special needs
• Prevents unintentional disinheriting and other problems of joint tenancy ownership
• Peace of mind

The author of this article is the principal of The Law Offices of Michael K. Elson.

How Much Do You Need at Retirement?

Filed under Planning & Money

Many people, when they retire, don’t have much fun at all. Sure they no longer have to work, which is good. But, other than watching reruns of their favorite TV shows, they’re not really living the retirement life that they envisioned because they just don’t have the money for it.

They’ve never sat down and planned their retirement or figured out how much money they would need at retirement. And to do so is not very difficult. You simply have to imagine and think about your ideal life at retirement and estimate how much money it would take to live at that level. Your retirement expenses will usually fall into the categories like the following:

Mandatory Expenses:

Housing – Estimate your housing cost at the time you plan to retire. If you own a home, this will be your monthly mortgage amount. Don’t forget to include your annual real estate tax amount and housing upkeep costs. If you are renting, add your monthly rental amount. Other fees that might be included in this category are big item home expenses such as stove, refrigerator, water heater, and so on.

Transportation – How do you plan on getting around your town or city? If you plan on owning a car after retirement, estimate your annual car maintenance fee, gasoline costs, and automobile insurance. If you rely on public transportation such as trains or buses, estimate the cost of monthly passes and so on.

Food – Grocery store items. Don’t include dining out in this cost figure. Estimate the amount of money you will spend on a monthly basis for food for your family which should include yourself, your partner, and whoever else will be living with you when you retire.

Health – You have to have some money saved up for medical emergencies that Medicare or your insurance policy is not covering.

Home or rental Insurance – usually a small amount but add it anyway.

Optional Expenses:

Entertainment – everyone needs to relax at some point. Look at your current life style or the life style you would like to have at retirement and add those costs. Things like movies, plays, amusement parks, museums, and so on – all go on the list.

Savings – Just because you’re retired, doesn’t meant that you automatically stop saving. You may have plans on saving for your grand daughter’s schooling or a special trip for yourself and your wife. Include it all.

Travel – For many retirees, retirement is the first chance that they’ve had to do extensive traveling. Maybe you’ve always wanted a trip to Morocco, or India, or Russia. Estimate how much such a trip would cost and add it to the pot.

Hobbies – Some hobbies don’t cost much at all, they simply require your time. But if you have a hobby like collecting rare coins, gambling, or flying airplanes – you’d better have saved yourself a large cache of money if you want to enjoy your passion.

Gifts – You don’t want to stop giving gifts just because you’ve retired. Estimate how much money you will probably need in order to give gifts to friends, family, and loved ones.

Now add up these expenses. Totaling the dollar amounts of these expenses should give you a pretty fair estimate of the type of life you’d like to live when you retire and how much it will cost you. With luck, you’ll be able to have the type of retirement that you’ve always dreamed of.

Article by Eric Bayne

Simple Ideas to Organize Your Finances

Filed under Planning & Money

With the economy struggling and many Americans adjusting the way they spend, now is a great time to do some financial planning. But with so many things to consider, sometimes it’s hard to know where to start.

“Organizing your finances doesn’t have to be something you dread. Start with a to-do list and work through each step until you’re done. You should feel better knowing what you’re spending and saving and what you can expect in the future,” says Scott Oberkrom, director of Community Investments at American Century Investments. “Web sites like offer easy tips for getting started.”

Consider getting your finances in order by completing the BEST to-do list — budget, estate, savings and taxes:

Budget Analysis
It’s important to create and maintain a budget and the New Year is a great time to review your income and expenses. This will be easier if you get in the habit of tracking the money you spend using a paper ledger or with your computer. Remember to account for any debt expenses you may have, such as credit card and loan payments and include changes you anticipate such as a pay raise or a new car payment in the New Year.

Think about ways to maximize your income and minimize expenses. If you need more income, you may decide to work a few extra hours at a part-time job in addition to your current job. Look for ways both large and small to spend less throughout the year. For example, you may be able to save a significant amount of money by bringing your lunch to work instead of eating out.

Estate Planning
Review your beneficiaries for your insurance policies, investments and retirement plans to make sure they are accurate and up to date. Review your will and trust documents to make sure they’re accurate, too. If you had any life or family changes, such as a birth, adoption or divorce, you may need to revise your beneficiary designations.

Savings and Investments
Make sure you have adequate savings or at least a plan to save during the year. This includes a separate emergency fund which should have at least three to six months’ worth of living expenses.

Set specific investing goals, such as retirement or college education, and review how much money you’ll need to reach each of your goals. Adjust your investment plan or goals if needed to increase your likelihood of success. For example, you may decide to establish an automatic investment plan to invest toward your goals on a regular basis. Or maybe you planned to retire early but find you’ll have a greater likelihood of retiring comfortably if you work a few years longer.

Tax Preparation
If you typically owe additional income tax each year or you get a big tax refund (which is essentially money you’ve loaned to the government throughout the year), you may want to consider adjusting your income tax withholding to have more or less withheld from your paycheck. You can adjust your tax withholding through your employer on IRS Form W-4.

Review the personal exemptions you claim for federal and state taxes to make sure they’re accurate and up to date. Also, take advantage of deductions to reduce your taxable income. For example, why not maximize your state tax payments before year-end since state taxes generally are deductible from your taxable income? You can deduct interest on your mortgage payments and you also may be able to deduct charitable donations.

“Don’t delay in getting your finances organized and getting the peace of mind that comes along with it,” says Oberkrom. “It’s easier than you think if you take it step-by-step.”

Article courtesy of ARA Content

What’s Next for Estate Taxes in 2007

Filed under Planning & Money

With President Bush back in office for four more years, people who’ve been thinking about estate planning are breathing a sigh of relief. Mr. Bush, after all, ran on a platform promising to end the “death tax.”

But as Mike Halloran, a director with the National Association of Estate Planners points out, it’s not a done deal yet, so people need to take the time to properly plan their estates, taking into account the present laws and proposed changes.

Under the current legislation, “The Economic Growth and Tax Reform Reconciliation Act” President Bush signed into law in 2001, the first $1.5 milli dollars of an estate is tax exempt in 2005. The tax exempt amount increases to $2 million for 2006 and $3.5 million in 2009 before being repealed, or ended altogether in 2010. But then, unless new legislation is passed, it will return to the original $1 million in the year 2011.

“The President wants to make the repeal permanent to allow family farms and businesses to be passed from one generation to the next without having to break up or sell the assets to pay a punitive tax to the federal government. But in order for that to happen, he has to get 60 votes in the Senate. With the body’s current make-up, there’s no guarantee that will happen,” says Halloran. Right now there are 55 Republicans, 44 Democrats and 1 Independent in the Senate.

“Unless you know for sure you’re going to die in 2010, the year there will be no death tax, you need to have a plan in place to protect your assets,” Halloran adds. “Plan your estate or plan on giving a good chunk of your estate to the federal government.”

To understand how important protecting your assets really is, Halloran offers this example: If you die this year and leave an estate of $10 million to your heirs with no protection, the first $1.5 million dollars worth of assets will be excluded from your taxable estate. The next $2 million will be taxed at a rate of 45 percent; the remaining $6.5 million will be taxed at 48 percent. Do the math and you’ll find that the federal government stands to gain $4,020,000 just because you died — a whopping 40.2 percent of your estate.

However, if you plan your estate using an irrevocable life insurance trust and credit shelter or family trust, you’ll be doing your heirs a big favor. With an irrevocable life trust, the trustee owns a policy on the life of one or more parents. When they die, the trustee pays the estate tax with tax-free proceeds from the policy. The full value of the estate is preserved and the heirs get what the benefactor intended them to get.

A credit shelter or family trust achieves a similar result by minimizing or eliminating the estate tax at the death of the surviving spouse. When the couple sets up their estate plan using the credit shelter trust, they would put $1.5 million of assets into a trust for the surviving spouse for life, which qualifies for the exclusion of those assets from taxation at both deaths. The children inherit their trust assets tax-free at the death of both parents.

Using our above example, we double the exemption and reduce the taxes by $720,000 and $1,200,000 if a $1 million life insurance trust is used.

“People may think they won’t have to worry about these things now that President Bush is back in office, but with the deficit growing by leaps and bounds every day, the money to make up for it has to come from somewhere and the estate tax is one place. If you don’t want it to be your pocket, or your kids’ pockets, make an appointment with an Accredited Estate Planner and get your affairs in order,” says Halloran.

Article courtesy of ARA Content

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