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Estate planning is all about accumulating and transferring wealth consistent with your personal goals and objectives. Whether the recipients of your wealth are relatives, friends or charities, you want to incur the least possible cost in estate and inheritance taxes, administrative, legal and accounting expense.1
Estate planning is a broad and complex field. Here is some information to help frame your thought process. We recommend that you contact a financial or legal professional to help you develop an estate plan tailored to your needs and preferences, so that you can continue your life knowing that your wishes will be fulfilled when your estate is passed on.
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Getting started!
1. Key questions to ask yourself.
2. Estate planning basics.
3. Estate tax saving strategies.
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| For more help with Estate Planning, contact the Private Client Group
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1. Key questions to ask yourself.
The first step in estate planning is to give thoughtful consideration to key questions about how your assets are distributed. |
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Who should inherit your assets?
- Do you want to pass everything to your spouse? (If you die without a will or living trust, state law dictates how much passes to your spouse.)
- Should your children share equally in your estate?
- Do you wish to include grandchildren or others as beneficiaries?
- Would you like to leave any assets to charity?
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Which assets should they inherit?
- If you own a business, should the asset type pass only to your children who are active in the business? Should you compensate the others with assets of comparable value? For more information about this, see Business Succession Planning or Insurance Planning.
- If you own rental properties, should all beneficiaries inherit them? Do they have the ability to manage property? What are each beneficiary's cash needs? For more information about this, see Specialty Asset Management.
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When and how should they inherit the assets? Consider these factors:
- The potential age and maturity of the beneficiaries
- The size of your estate versus your and your spouse's need for income during your lifetimes
- The tax implications1
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| For more help with Estate Planning, contact the Private Client Group
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2. Estate planning basics
What types of assets are included in an estate?
- Cash
- Stocks and bonds
- Notes and mortgages
- Annuities
- Retirement benefits
- Personal residence
- Other real estate
- Partnerships, business interests
- Life insurance you own (a policy on your life in which the owner and beneficiary is someone else is not part of your estate for tax purposes)
- Automobiles
- Artwork
- Jewelry
- Furniture and collectibles
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Basic estate planning steps
- Be sure your will or living trust reflects your current wishes and personal situation.
- Check your beneficiary designations on insurance policies, retirement plans and other documents to be sure that they are current, correct and consistent with what you have specified in your will or living trust.
- If you are a business owner, update your buy-sell or shareholder agreements on a regular basis. For more information, see Business Succession Planning.
- Design a gifting strategy and begin making gifts to family members to remove assets from your estate. Consider how you can use non-income producing assets to make gifts if you need to retain your income-producing assets for your own use. See Charitable Giving.
- If your wealth is tied up in a business or other illiquid asset, buy life insurance to cover the cost of estate taxes so that the business doesn't have to be liquidated in order to cover the tax burden. See Insurance Planning.
- Select an executor for your estate.
- Consider tools to reduce your estate tax liability. See Estate Tax Saving Strategies.
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Professional or Individual Executor or Trustee?
Advantages of a professional executor or trustee:
- Specialist in handling estates or trusts
- No emotional bias
- Impartiality - free of personal conflicts of interest
- Independence - sensitive to, but not hindered by, emotional considerations
- Financial expertise
Advantages of an individual executor or trustee:
- More familiarity with the family
- Potentially lower administrative fees
- Ability to hire professional advisors as needed
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| For more help with Estate Planning, contact the Private Client Group
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3. Estate tax saving strategies
You have a variety of options for reducing the tax burden on your estate. Some are relatively simple; others are complex and costly to set up, but may result in significant tax savings. You must decide for yourself which technique works best for you.1
Here are some commonly used strategies for reducing estate taxes.
- Take advantage of the marital deduction. If you and your spouse are willing to pass all your assets to the survivor, no federal estate tax will be due on the first spouse's death.
- Maximize your estate tax exemption with a credit shelter trust. By each spouse using their full individual estate tax exemption, a married couple can avoid tax on up to double the exemption amount. This is accomplished with a credit shelter trust. See the Estate Planning Glossary for details or click here for more information on Personal Trust.
- Take advantage of the annual gift tax exclusion. You may give up to $12,000 a year (in tax year 2006) per recipient without incurring gift taxes. In addition, you can give up to a total of $1 million tax free in your lifetime.
- Consider sharing your estate with charity to reduce your estate tax bill. If you want to leave part of your estate to charity and part to your family, a trust can be the answer. Or, you may want to set up a Private Foundation. Click here for more information on Charitable Giving.
- Consider a generation-skipping trust. If you have a sizeable estate and your children are also financially secure, you can structure your will so that a full generation-skipping tax exemption goes to your grandchildren. Although your estate will pay taxes, you avoid having your assets taxed again in your children's estate. Your grandchildren inherit the assets and any future appreciation, free of estate tax.
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| These are just some of the techniques you can use to protect your hard-earned assets and assure that the value of your estate is shielded from estate tax to the greatest extent possible. Consult a legal professional for details about these and other estate planning tools such as family limited partnerships or QTIP trusts. |
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| For more help with Estate Planning, contact Private Client Group.
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Estate Planning Glossary1
- Credit shelter trust — This flexible estate planning tool protects assets from taxation. When the first spouse dies, the amount of the estate that is exempt from tax is transferred to the trust rather than passing to the surviving spouse. This reduces the size of the survivor's estate that is subject to tax when he/she dies, while still providing an opportunity for income or principal payments to the surviving spouse. To efficiently save taxes, a credit shelter trust must carefully follow rules laid out by the IRS. Consult an attorney or other trusted advisor for help.
- Estate tax — A tax imposed on the transfer of property from a deceased person to his or her heirs.
- Executor — The person you appoint to have fiduciary responsibility to administer your estate. The executor's responsibilities include arranging probate of the will, collecting the estate's assets and filing an inventory with the court, investing the estate's assets during the probate process, maintaining all records of estate financial transactions, paying final bills, estate and income taxes, distributing property to beneficiaries and following other directions in the will. Because of the responsibilities and time required, many people select a fiduciary such as a bank to act as executor of their estate.
- Family limited partnership — This type of partnership converts an estate plan into a family business, allowing you to give assets to your children or grandchildren during your lifetime, but retain control of those assets by remaining actively involved in the partnership throughout your lifetime.
- Living trust — Also referred to as a revocable trust, this legal document acts as a will substitute, providing instructions for the management of your assets on your death and - if funded - during your life. You transfer assets into the trust for your benefit during your lifetime. You can serve as trustee or select a professional trustee. You completely avoid probate only if all of your assets are in the living trust when you die.
- QTIP trust — A Qualified Terminable Interest Property (QTIP) trust is a way to provide support for a surviving spouse during his or her lifetime but retain control of the distribution of estate after your spouse's death. QTIP trusts are often used to transfer assets to children from a prior marriage.
- Probate — A court-supervised process to protect the rights of creditors and beneficiaries and to ensure the orderly and timely transfer of assets in an estate.
- Valuation — Federal estate tax is based on the fair market value of a person's assets on the date of his or her death. Competent valuation techniques may substantially reduce estate taxes due. Consult your attorney or other trusted advisor for more information.
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| NOT A DEPOSIT |
NOT FDIC INSURED |
MAY LOSE VALUE |
NOT BANK GUARANTEED |
| NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY |
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This information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Investors should consult their investment professional for advice and information concerning their particular financial situation.
1 This discussion is intended to be informational only and is not exhaustive or conclusive. U.S. Bank and its representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.
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