Steps to Help Ensure Estate Planning Success

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For many people, more time and attention are devoted to building their estate than to planning for its ultimate disposition. Understandably, enjoying the fruits of your labor is often more interesting than planning for what might happen when you are no longer here.

However, the Internal Revenue Service (IRS) is interested in your estate, and a lack of estate planning could, at the very least, create stress for your heirs and, more importantly, increase your estate tax liability. With this in mind, here are six estate conservation strategies that can help you avoid some unnecessary pitfalls:

1) Keep detailed records. After you die, your heirs will need to sort out your financial affairs. You can help them by maintaining detailed records and letting them know where to find your will, insurance policies, bank statements, and other important documents.

2) Keep your will up to date. A will is the most basic legal estate planning document, through which you can specify how your property is to be distributed at your death. In addition, you can appoint anexecutor, who will coordinate the process of probate, the preparing and filing of final income and estate tax returns, and the distribution of assets. Without a will (intestate), the state will determine the distribution of assets according to state inheritance laws.

3) Plan beyond your will. A will arranges your estate after your death. However, incapacity during your lifetime may affect your ability to make financial and health care decisions. A durable power of attorneydesignates someone to make financial decisions on your behalf, even in the event of incapacity. A living will states your wishes for the use of life-sustaining measures under specified conditions. A health care proxy (also known as a medical power of attorney) designates someone to make important health care decisions on your behalf. A complete estate plan encompasses both lifetime and post-mortem planning.

4) Take advantage of the applicable exclusion amount. In 2014, each taxpayer may transfer up to $5.34 million (the estate tax applicable exclusion amount) in assets to non-spousal heirs without estate taxation. Your entire estate can pass to your spouse tax free under the unlimited marital deduction. As a result of the enactment of the American Taxpayer Relief Act of 2012, if one spouse dies and does not use the full exemption amount, the remainder can be used by the surviving spouse. With this “portability” option, spouses do not have to split assets between them, or be concerned about who holds the title on various assets.

5) Use the annual gift tax exclusion. In 2014, an individual can give away up to $14,000 per year ($28,000 in the case of joint gifts made by a married couple) to an unlimited number of recipients tax free. For individuals with large estates, a regular gifting strategy using this annual exclusion may be an attractive way to transfer appreciating assets, which would otherwise have the potential to increase estate taxes if left in the estate.

6) Consider life insurance. Life insurance is often used as a funding method for estate taxes. However, proceeds of life insurance policies are includable in your gross estate for purposes of calculating estate taxes. Consider using an irrevocable life insurance trust (ILIT), which removes the insurance from your estate and therefore potential estate tax exposure.

By preparing in advance, your wishes for property distribution can be executed upon your death. Be sure to consult with your qualified tax, legal, and financial professionals to help ensure your strategies are consistent with your overall objectives.


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Stephanie Mazzarello