While many of us do not enjoy the prospect of planning for our own demise, estate planning does serve a function. It provides a way to make sure that our wealth and our wishes are followed for our heirs, which can include our spouse, children and even grandchildren. Not only can it provide a clear plan for your assets, but if done properly, it can assist you in eliminating or at least reducing the tax burden that your heirs will inherit, along with the estate. Working with an accountant or tax professional, such as EB TAX CONSULTANTS in BROOKLYN, NY, you can maximize the value of your estate while eliminating any potential uncertainties regarding your estate’s administration. Here are a few important concepts to understand as part of estate planning.
What is Probate?
Probate is a legal system that is used to distribute property at death. The process includes a will being entered at court, then the court hears from the representative of the estate, thus determining if the will is valid. Once that occurs, the court appoints its own personal representative to close out the estate. At this point, creditors are notified to file any claims against the estate. Once they have received all claims, the claims will be paid based on the order or priority that is governed by state statute. Any remaining funds will then be distributed to the will’s beneficiaries or the estate’s heirs if no will was found to be binding. Finally, the probate judge closes out the estate.
In order to work through the system, it is best to have a will, along with designated powers of attorney, a living will and any other trusts or beneficiary designations as determined by your personal estate plan.
The Tax Benefits
Estate planning can provide tax benefits, in terms of reducing the amount of taxes that your estate owes to the federal and state government. If your estate is larger than $5,430,000, then you will have to find ways to reduce the amount of your estate in order to reduce your tax liability. However, keep in mind that by reducing your tax burden, then you are actually leaving more estate and assets to the beneficiaries and heirs.
Life insurance is not typically taxed for federal income tax purposes, so a life insurance trust could be set up to pay any estate taxes. As a result, depending on the size of your estate, you may want to consider creating a trust to transfer assets to before your death. This will reduce the size of your estate. At the same time, you can create a trust with specific rules that will make it possible for your heirs to benefit once the trust’s conditions have been met.
Using a Revocable Living Trust, joint ownership of assets, making lifetime gifts and purchasing life insurance can all be used to avoid probate. If a trust is put in place, it needs to be funded during the lifetime of the person who originally established it. Additionally, you can create trusts specifically for children, especially if those children may have specific disabilities that will mean they need funds for medical and living expenses throughout their lifetime.
All of these methods can assist in reducing or eliminating the potential tax liability of your estate. Still, working with a tax professional or estate planner, you can determine the best method for your estate and your unique circumstances.
What about Minors?
If you have minor children, then a will and potentially a trust are vital, as they can be used to provide for your children throughout the years before then are considered legal adults. It can also be used to provide funding for schooling and other large expenses throughout the years. At the same time, this allows you to name a guardian and any other individuals that you want in place to finish raising your children to adulthood.
Remember that you will want to be sure to update your will every few years as your children age, making sure that you still have all the proper measures in place based on their age and your current assets. Guardians may also be changed, based on circumstances in life.
As you can see, it is important to make sure that you do a proper job of estate planning to make sure that your heirs are taken care of in the way that you want them to be, while reducing the potential tax liability.
Click on the link below to contact a tax professional or accountant in the offices of EB TAX CONSULTANTS in BROOKLYN, NY, who can assist you in understanding the potential tax liability of your current estate.
ERNIE BUSTAMANTE