PROPER ESTATE PLANNING CAN SAVE TIME, MONEY, AND HEARTACHE
Estate planning is more than simply
creating a Will or Trust. It is organizing and coordinating
the ownership and distribution of your assets so that your
wishes regarding the distribution of your property will be
accomplished. An estate plan may include the use of a Will
or a Trust and should always involve a thorough review of a
person’s assets, ownership of those assets, and any
beneficiary designations.
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ESTATE DOCUMENTS
Will. A Will is a written document that provides for the disposition of a person’s property when he/she dies. To be valid, the person executing the Will must be of sound mind, not subject to undue influence and witnessed by two adult people
Revocable Trust. A Revocable
Trust is another estate planning tool. It is a document
created during life for the purpose of holding title to
property. The assets in the trust are managed and distrusted
in accordance with the client’s wishes as outlined in the
Trust Agreement. A client who is elderly or inexperienced in
the management of property may desire Trust management
during his/her lifetime. The Trust may also reduce probate
costs, eliminate the need for guardianship in the event of
disability and provide confidentiality since the Trust does
not become public record. Contrary to common belief, a
Revocable Trust does not avoid estate taxes or protect
assets from being used for nursing home care.
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TAX LAW
Estate Tax. An estate tax is a tax imposed on the right to transfer property by death. However, a deceased person receives a tax credit that reduces or eliminates estate tax. The Federal Tax Exemption is follows:
2007-2008: $2,000,000.00
2009: $3,500,000.00
2010: $0.00
2011: $1,000,000.00
Minnesota also has an estate tax that applies to all estates in excess of $1 Million dollars. For Minnesota residents (or non-residents with the assets located in the State) there may be a requirement to file a Minnesota estate tax return (M-706).
There are ways to eliminate or minimize estate tax. Property passing between spouses or to a qualified charity is not subject to estate tax. With proper planning, parents may be able to double the size of inheritance left to their children without the imposition of estate tax.
Gift Tax.
For the year 2007, the gift tax exclusion is $12,000 per
person per year. Any amount in excess of that requires the
filing of a Gift Tax Return. By executing appropriate
consents on the Gift Tax Return, a husband and wife may
elect to have their gifts treated as made one-half by each.
That means that a married client with a spouse’s consent may
make gifts of $24,000 per year per donee without incurring
gift tax. The annual exclusion amount is subject to an
adjustment for inflation without probate court involvement.
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DISTRIBUTION OF YOUR ESTATE
Probate: Probate is the legal proceeding by which title to your property is transferred through the court system. Only assets that are owned individually are subject to probate. If you have a will, the will is the governing document regarding the distribution of your property. If you die intestate (without a will) the laws of the State of Minnesota govern the distribution of your estate.
Court Administration: The probate court is involved in varying degrees depending on the type of probate proceeding the personal representative selects. An informal probate proceeding does not require appearances before the probate court of an accounting of the estate's activities. An informal proceeding is often selected when the estate is liquid and there are no issues in dispute. A formal probate proceeding is used when the heirs wish the have the court make determinations or supervise the management of the estate. Most estates can be closed within six months of opening unless an estate tax return is required to be filed.
Non-Probate: There are a variety of techniques available to eliminate the need to probate an estate. Assets that are controlled by the terms of a contract such as a life insurance policy or IRA naming a beneficiary pass without probate court involvement. Property held as joint tenants is non-probate because the surviving tenant becomes the owner of the property by operation of law. However, avoiding probate does not mean a descendent avoids estate taxes. Whether property is subject to estate tax is determined by the decedent's ownership interest in the property at the time of death.
OTHER ISSUES
Health Care Directive. Every thorough estate plan should also include the preparation of a Health Care Directive (HCD). A HCD is a written statement to your doctor and family setting forth your instructions regarding the medical treatment you wish to receive when you are terminally ill.
Power of Attorney. A Durable Power of Attorney (POA) is a written instrument that nominates a person or institution to be your Attorney-in Fact (AIF). The AIF is authorized to handle your financial affairs in the event of your incapacity. The AIF is often a spouse or adult child. Upon death, the POA terminates. A POA may eliminate the need for a court-supervised conservatorship.
This webpage contains general information and not legal advice. It is based on Minnesota Law in effect the the time of writing. An attorney of Farrish Johnson can advise you about how the law applies to your specific situation