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Estate Planning and the American Taxpayer Relief Act
The new tax code and law has many people thinking that only the very wealthy need to worry about estate planning and estate taxes, according to The New York Times. The federal tax on estates, according to the Times, is now $5.25 million, or $10.5 million for a couple, which seems far out of the range of most people's assets. And yet the American Taxpayer Relief Act, passed in January of this year, has effects far greater than just to change the federal tax rate of estates. "Many people may not want to think about how the changes… could affect them," according to the Times. "But if they don't, they may be shocked come next year's tax season. Or worse, they may end up making financial plans based on a cursory understanding of what the changes mean for them and regret it later."
Because of this, it's important to review the changes to the federal tax code under the American Taxpayer Relief Act and figure out just how they affect you. It's true that the exemption was raised—a fact that caused quite a bit of political rancor. Yet according to the Times, "the tax rate fell from 2001 until 2010, when the estate tax disappeared for most of that year. When the tax returned in 2011 and 2012, the exemption was set at a historically generous $5 million indexed for inflation and a 35 percent rate above that."
Types of Living Trusts
A living trust is a trust that is created and operated during the grantor's lifetime. There are two different types of living trusts. The first is a basic living trust, which can be used for an individual or a couple. Second is a living trust with marital life estate, or an AB trust. After the grantor's death, a basic living trust allows your property to avoid probate and pass to your beneficiaries quickly and efficiently. It is used to avoid probate. Probate is "the official proving of a will," according to Wikipedia.com. To create a basic living trust, you have to transfer some or all of your property to the living trust. You instill yourself as the trustee so you won't be giving up any control over your property. If you and your spouse create the trust together, than you will be co-trustees. After your death, the person who was named in the trust document will transfer ownership of the property to whomever you declared in the trust. An AB trust should only be considered if you own property that is worth $650,000 to $1 million worth of property. If you don't establish a living trust, there may be a big estate tax bill after you die. An AB trust lets you pass the maximum amount of property to your beneficiaries after you or your spouse dies. Each spouse leaves most or all of their property to a "marital life estate trust." When one spouse dies, the other spouse can use that property, but won't own it. When the second spouse dies, the property will not have to pay an estate tax because the second spouse never owned it. If you or anyone you know is thinking about establishing a living trust, be sure to contact a lawyer. Call an experienced Illinois Estate Planning Attorney.Image courtesy of koratmember/Freedigitalphotos.net
Illinois Estate Tax Exemption Increases in 2013
According to Lexology, the Illinois estate tax exemption increased in 2013. The differences between the Illinois estate tax system and the federal estate and gift tax regime require very specific estate planning for residents of Illinois, as well as anyone who owns real estate in Illinois.
According to Lexology, the major differences between the Illinois estate tax system and the federal estate and gift tax regime are:
- "The Illinois estate and generation-skipping tax exemption is $4 million, while the federal estate and generation-skipping tax exemption is $5.25 million.
- The Illinois estate tax exemption is not indexed for inflation. The federal estate tax exemption, however, is indexed for inflation and has increased about $250,000 since 2011 because of the inflation adjustment.
- Illinois does not impose a gift tax on transfers made during life, but there is a federal gift tax on transfers made during the lifetime.
What is Probate?
Probate is the process of figuring out how to distribute a person's assets after they die. If you have no estate plan at all, your property may not be distributed the way you wanted it to be distributed Taxes and state laws must be considered, but without a will, you have no control of your belongings. During probate, the court will oversee the division of assets and help mitigate any disputes. The process of probate starts with naming the executor, either by a will or, in the case that the deceased had no estate plan, someone named by the court. The executor presents the will, if there is one, to the probate court. Heirs, beneficiaries and creditors are notified that the estate is in court in case they want to contest a will or bring any claims. In the meantime, the executor manages all financial matters, including debts and bills. Once all debts are finalized in the court summary of receipts, a report is public and given to all the beneficiaries. How long the process of probate takes depends on how complicated the estate is. If a person is in a lot of debt, probate may take longer. Not all property is considered probate property.- Probate property is property that belonged to the individual who died, and had no other names on it.
Special Needs Trusts
Estate planning is very important for every adult in America, but especially so for parents of disabled children. If you are in this situation, you must first be sure that your child's needs are met throughout his or her life even after you are no longer able to care for him or her. You most likely also want to save some of your wealth for your children without special needs too though. In order to do this, you can create a "special needs trust." This trust will create public assistance to your disabled child.
Specials needs trusts supply money to the disabled child fir travel, recreation, education, medical expenses and rehabilitation, which are not covered by public assistance. The trust is written so that the person named as the trustee is only able to use the assets and money in the trust for benefits available for the disabled child. If, however, the trust funds are able to be used as prime means of support, the disabled child may not be eligible for forms of public assistance such as Medicaid.
The Types of Last Will and Testament Documents
A Last Will and Testament is designed to transfer assets upon death according to the wishes of the departed. This is accomplished by addressing the three concerns of the transfer, namely, beneficiaries of the will, guardians for any minors and an executor to administer the estate. This is accomplished in one of three separate ways.
The first type is a simple or statutory will which is primarily used in uncomplicated estate planning. There are state specific forms containing the necessary legal language which is completed by filling in the blanks. This "one size fits all" option is not recommended as each person's estate planning needs will be different.
The second type is a will with a testamentary trust. This is a form of estate planning when the testator, or will-writer, does not desire to create a revocable trust. This form of will is beneficial because it may avoid a guardianship estate if children are beneficiaries. Yet this form does not always allow the estate to miss probate and is just as complex as setting up a revocable trust.
Identifying Your Assets
Estate planning may seem a daunting task, better left for the very rich or the savvy investor. An asset, however, can be anything—from a simple family home to an insurance policy—things that any average American may possess. Upon your death, what happens to your assets will be determined by the court if you don't make your wishes known beforehand. To do this, you'll first need to identify your assets and take stock of them. According to CNN Money Magazine, "these include your investments, retirement accounts, insurance policies, real estate, and any business interests."
Deciding where they will go upon your death is the next step. That is, you need to decide to whom you'll like your assets to go—only then can you begin to put framework in place to ensure that this happens. Your children? Your spouse? Begin by making a list of people you trust, and assigning them to various holdings. "Once you decide what kinds of bequests you wish to make, be sure to discuss your plans with your heirs," according to CNN Money Magazine. "The sooner and more distinctly you outline your intentions to your family and friends, the less chance there will be for disagreements when you're gone."
5 Ways for Retirees to Save Money
To keep the transition between having a secure, stable paycheck to living only on Social Security smooth, you must figure out how to make ends meet on your new fixed income. Here are five ideas to keep that transition smooth:
Get your social security right
Social security is a huge issue for all retirees, so be sure you make the most of it. Although there are many temptations to start taking your Social Security benefits early, if you postpone it, your monthly payments will be boosted when you do begin to take it. If you are married, consider the effects that your choice may have on your spouse as well
Invest for income and growth
With rates on banks CDs and bonds at low levels, retirees have had to stretch their money to get the income that they need recently, buying dividend stocks and high-yield bonds over safer income investments. Consumer stocks often yield more dividends than their bonds pay in interest. They also have long histories of dividend increases and share-price appreciation that could help your income grow and boost your retirement nest for later retirement years.
Who Is Austin Fleming?
The Chicago Estate Planning Council, which has been around since 1938, is comprised of attorneys, financial planners, trust officers, chartered life underwriters, etc. Every year, they present the Austin Fleming award to an estate planner who has helped improve estate planning practices in Chicago and the surrounding counties.
But this brings about the question of who Austin Fleming was, in relation to estate planning. Austin Fleming started making a legal name for himself back in 1929, when he co-authored an article in the Michigan Law Review, debating whether a judgment concludes non-partners of whose interests the plaintiff had no notice. Fleming wrote articles pertaining to many legal aspects up until his death in 1979, touching on topics that are still important today (apportionment of estate taxes and the varying standards of prudence applicable to fiduciaries, for example).
Probate and Ways to Avoid Probate
When people die with wills there are still accounts to settle. Probate is a court process which distributes and manages your estate according to your terms. It sounds like it should be an easy transition but in reality probate can take anywhere between 3 months to 2 years.
There are also costs associated with probate proceedings. The list of costs comprises; appraisal fees, bond premiums, attorney and accountant fees, executor's fees, publication costs for legal notices, and court costs. In Illinois, there are numerous options available to make this transition easier for your loved ones by avoiding probate altogether.
Living trusts offer a way to avoid probate for nearly every asset. It requires a trust document which is similar to a will. This document names a trustee who will be responsible for transferring your estate to your beneficiaries and avoid probate.
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