|Financial planning for older parents
is a family affair|
Trust(ing) estate plans
But a will is not necessarily the most effective estate planning
tool. If you really want control over your assets -- now and after
you're gone -- think about establishing a living trust.
Trusts often are viewed as money management
for the wealthy. However, when it comes to estate planning, a trust
can help anyone avoid the hassle -- and costs -- of probate.
With a living trust, you name yourself as the
trustee of the assets you place in the trust and continue to manage
them. Upon death, the person you've chosen as your successor trustee
immediately transfers ownership of the trust's property to your
beneficiaries. The whole process usually is quick and simple, bypassing
the extra time and expense that probate adds to settling an estate.
Even more appealing, notes Ronda Martinez, a
vice president for investment and trust management services with
Third Bank in Troy, Mich., the specifics of a trust are confidential.
A will must be filed with the probate court, placing it in the public
record and allowing everyone to see what you left and to whom. By
stating in your will (which you should have as a backup) that your
estate wishes are detailed in your trust, your plans will be carried
Tailoring trusts for
A trust also can be designed for specific family situations.
Take the case of a person who has three children,
two fiscally responsible high achievers and one spendthrift, says
Martinez. A parent can mandate that the trust maintain and manage
the third child's inheritance so that it won't be squandered.
Similarly, a trust can provide for children,
or grandchildren, with special needs. If properly set up, the trust
money can supplement any government payments being received.
And couples, especially those who hold a sizable
amount of assets jointly, should set up separate trusts. When all
property is held together, Martinez explains, it can be difficult
to determine certain possessions' worth (also known as basis for
tax purposes) and that could cost the survivor some money.
But while you'll save on probate, you should
pay to have a qualified professional establish a living trust. Financial
experts caution against using your brother-in-law who's a criminal
attorney or your firm's corporate lawyer. Estate laws are complex
and vary from state to state, so get a specialist to make sure your
trust is set up correctly.
And despite recent estate law changes, if your
holdings are vast, a living trust won't help you with taxes. In
2004, the Internal Revenue Service still can levy a tax rate as
high as 48 percent on an individual's bequeathed assets, even those
distributed through a trust, that are worth more than $1.5 million
and go to someone other than a spouse. The estate exemption amount
will climb gradually and tax rate drop incrementally until the tax
is eliminated in 2010. But without additional Congressional action,
the estate tax will revert to the higher pre-change levels in 2011.
Growing estates can
mean growing taxes
For most Americans, the $1.5 milllion (and growing) estate cap
per person provides plenty of tax maneuverability.
Financial advisers caution, however, that the
value of an estate includes everything a person owns -- cash, retirement
savings, a house, a vacation home, autos, stocks and bonds. Wise
and diligent investors are likely to see their total assets increase
in value in the coming years, pushing the tax-free limit.