I am a do-it-yourselfer. I love working around my house: Painting, building, and even stuccoing. But there are exceptions, like plumbing. I hate plumbing. One thing I have learned about my handyman hobby is that I should expect to buy twice the building materials that I should need to complete the project. Experience tells me that I will use all of those materials. My habit is to try to build the first time, fail, and then to try it again. Almost invariably, I will end up building or fixing up the same thing at least twice -- once or twice for practice, and then "for real." Some who would never consider fixing a garage door or stuccoing a wall would unthinkingly prepare a will or trust using many materials found in bookstores. Bookstores abound with quick-fix be-your-own-lawyer books and CDs, featuring forms and fill-the-blank forms and programs for wills, trusts, and powers of attorney for healthcare decisions. Some of these materials are even state specific, offering different provisions for residents of different states.
We will address some of the most prevalent and most common estate plan trusts myths so we can be better informed. Myth. The Federal Estate Tax was repealed. The passage of the 2001 EGTRRA provided valuable estate tax breaks. Because of the peculiar way in which the law was written, the Economic Growth and Tax Relief Reconciliation Act also gave some people a false sense of security by leading them to believe that the federal estate tax was repealed in 2001.
The reality is that the current tax law repeals the federal estate tax for only one year, 2010. Depending on the year of death, the estate tax credit amount, the corresponding exclusion amount (which is the amount that each person can pass to beneficiaries free from federal estate taxes) and the top tax rate vary significantly. For instance, in 2009, a person can pass up to $3.5 million to his or her beneficiaries' federal estate tax free. For 2010 the federal estate tax was repealed. In 2011, the estate tax is scheduled to return with a significantly lower tax free amount, $1 million, and a significantly higher top tax rate at 55%. This quirk in the law is known as the "Sunset Provision" and has caused a lot of confusion among estate planners and their clients.
With that information, estate planning attorneys can then explain to you the best alternatives for seeing that your estate is handled as you wish. They will not only discuss wills and trusts; they will present options which you can employ immediately to lessen the taxes and probate costs on your estate.
As of late 2007, the sentiment in the House and Senate had shifted considerably against repeal. Most experts feel that repeal efforts have very little chance of success over the next two years. This, however, is not the end of the story. Instead of repeal, reform of the federal estate tax is a possibility. Several key lawmakers were up for re-election in 2008 and they would have liked to see the estate tax issue resolved prior to Election Day. Such did not happen. Almost everyone agrees that something needs to be done to make the federal estate tax more predictable and user friendly. It seems that the current political climate could be the right time for reform. One possible reform is to freeze the 2009 rates and exemption amounts for 2009 and beyond with an exemption amount of $3.5 million per estate and a top tax rate of 45%. Only time will tell what happens, but one thing is certain, doing nothing and waiting for Washington to fix things is probably not in your or your family's best interests.
Trusts are all the rage -- and for good reason. In general, you can avoid the probate court by transferring property to trust. When someone places property into a trust, they transfer ownership to a trustee, who manages and disposes of the property in accordance with the instructions in the trust agreement. Usually, in the case of a fully revocable trust (which means that the trust can be readily amended or revoked) the originators of the trust (called the "trustors" or the "settlors") are also the trustees. In effect, the trustee in such a case manages his, or her, own money. When you own your own property outright, you can obviously sell it, lease it, spend it, or save it. Depending upon how it is drafted, the same is true in the case of a settlor who places his property in a fully revocable living trust -- the property in such a case may also be sold, spent, or leased. For all practical purposes, the settlor in such a case still owns the property. However, when the settlor dies, his or her successor trustees take over management of the trust, passing the property to the beneficiaries and usually avoiding probate court. A revocable trust of this type, by itself, confers no tax benefit even though there are certain types of trusts, and estate plans, which sometimes can provide such benefits.
We will address some of the most prevalent and most common estate plan trusts myths so we can be better informed. Myth. The Federal Estate Tax was repealed. The passage of the 2001 EGTRRA provided valuable estate tax breaks. Because of the peculiar way in which the law was written, the Economic Growth and Tax Relief Reconciliation Act also gave some people a false sense of security by leading them to believe that the federal estate tax was repealed in 2001.
The reality is that the current tax law repeals the federal estate tax for only one year, 2010. Depending on the year of death, the estate tax credit amount, the corresponding exclusion amount (which is the amount that each person can pass to beneficiaries free from federal estate taxes) and the top tax rate vary significantly. For instance, in 2009, a person can pass up to $3.5 million to his or her beneficiaries' federal estate tax free. For 2010 the federal estate tax was repealed. In 2011, the estate tax is scheduled to return with a significantly lower tax free amount, $1 million, and a significantly higher top tax rate at 55%. This quirk in the law is known as the "Sunset Provision" and has caused a lot of confusion among estate planners and their clients.
With that information, estate planning attorneys can then explain to you the best alternatives for seeing that your estate is handled as you wish. They will not only discuss wills and trusts; they will present options which you can employ immediately to lessen the taxes and probate costs on your estate.
As of late 2007, the sentiment in the House and Senate had shifted considerably against repeal. Most experts feel that repeal efforts have very little chance of success over the next two years. This, however, is not the end of the story. Instead of repeal, reform of the federal estate tax is a possibility. Several key lawmakers were up for re-election in 2008 and they would have liked to see the estate tax issue resolved prior to Election Day. Such did not happen. Almost everyone agrees that something needs to be done to make the federal estate tax more predictable and user friendly. It seems that the current political climate could be the right time for reform. One possible reform is to freeze the 2009 rates and exemption amounts for 2009 and beyond with an exemption amount of $3.5 million per estate and a top tax rate of 45%. Only time will tell what happens, but one thing is certain, doing nothing and waiting for Washington to fix things is probably not in your or your family's best interests.
Trusts are all the rage -- and for good reason. In general, you can avoid the probate court by transferring property to trust. When someone places property into a trust, they transfer ownership to a trustee, who manages and disposes of the property in accordance with the instructions in the trust agreement. Usually, in the case of a fully revocable trust (which means that the trust can be readily amended or revoked) the originators of the trust (called the "trustors" or the "settlors") are also the trustees. In effect, the trustee in such a case manages his, or her, own money. When you own your own property outright, you can obviously sell it, lease it, spend it, or save it. Depending upon how it is drafted, the same is true in the case of a settlor who places his property in a fully revocable living trust -- the property in such a case may also be sold, spent, or leased. For all practical purposes, the settlor in such a case still owns the property. However, when the settlor dies, his or her successor trustees take over management of the trust, passing the property to the beneficiaries and usually avoiding probate court. A revocable trust of this type, by itself, confers no tax benefit even though there are certain types of trusts, and estate plans, which sometimes can provide such benefits.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: The Best Tax Efficient Relocation Strategies To Retire Rich You have full permission to reprint this article provided this box is kept unchanged.
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