Property
(Definition) Property is described as either real or personal. Real property is real estate, and personal property is everything else. Personal property includes physical assets such as automobiles, equipment, household items, etc. Personal property also includes financial property, such as securities, notes or loans receivable, bank accounts, cash and insurance policies.

Estate Planning
The following information will exclude financial and retirement planning, as well as any discussion of insurance needs, because NAFEP does not directly become involved in those areas. Many of NAFEP's independent Associate members do provide financial, retirement and insurance planning and services, but only as a part of their own independent practice. This discussion focuses upon the proper methods of holding property during your life, and passing your estate on to your heirs in a manner and timing of your choosing, all with minimum taxes and intervention by the legal system.

Why Do Estate Planning?

Dying Intestate
Dying intestate means dying without having prepared either a will or a trust which provides the details of passing your estate on to your heirs. All property owners have some estate planning for the distribution of their estate to their heirs whether they are aware of it or not. Without a will or a trust the inheritance laws (laws of intestacy) of your state will determine how your property will pass to your heirs. If you have no heirs that fit the state's formula, the assets will be taken by the state. Often times the state's formula and rules for moving assets to your heirs will not be what you would have chosen if you had thought about it.

Problems With Probate
If you die with any property titled in your personal name, there must be a probate process for that property. Probate is the state's legal procedure for handling two major functions for your estate:

Identification of the rightful heirs to the estate and the share size that each heir will receive,

Getting the legal title of your property out of your name and into the name of the heirs.

Having a will drawn up in advance of your death will take care of the first function, identification of the rightful heirs and their share. With no valid will for your estate the state will use its own formula for determining heirs and their share. But even with a will the retitling of your property still must be handled by the state through the court administered probate procedure. When someone is dead the only way their property can be legally retitled in the heirs' names is by a court order in the court supervised probate process.

Probate avoidance is desirable because it can be a time consuming and expensive process. Reliable estimates are that on a national average probate costs run from 6% to 10% of the value of the estate. This means that an estate worth only $200,000 could cost $12,000 to $20,000 to probate. These costs are based on the full fair market value of the property, and not on just the net worth or equity. In some cases probate ends up in litigation that drags on for years. Frequently it leads to huge family battles, and it often causes or allows the decedent's wishes to be ignored. In addition, probate procedures are all made public, causing family privacy to be lost.

Probate is avoided quite simply through the use of a family estate planning trust, either a living trust or a life estate trust. Probate is avoided by titling your property in the name of the trust before your death. You have complete control of the property during your life, but the trust is considered to be the legal owner of the property for title transfer purposes. Upon your death a trustee that you have appointed will simply handle the transfers or payments to your heirs that you specified in the trust. You have a great deal of flexibility in specifying the details of these payments and transfers (see the "Estate Transfer & Heir Planning" topic below). After your death the trustee can handle everything quickly and simply without lawyers, court supervision, excessive costs or delays.

Concerns Before Death
Even before you die there are two important estate planning issues that should be considered for your own benefit. These are:

Titling your property in the best manner,

Protection of your property from the legal repercussions of your own possible mental incapacitation, as well as protection from divorce problems, lawsuits, judgments and liens.

This second issue is known more simply as "asset protection". Titling property and asset protection are two interrelated items. Correctly and fully addressing these two issues is vital to preserve and build your estate so it is there for both you and your heirs to use. And coincidentally, proper planning in this area will avoid probate as well.

To further your knowledge of titling problems, you may be interested in reading a short NAFEP article entitled "The Liabilities of Joint Tenancy"

Estate and Inheritance Taxes
One of the crueler provisions of this country's tax laws is the possible taxation on the transfer of your estate to your heirs. When these taxes are imposed they are on property that was acquired by you with after tax dollars. Your estate consists only of "after tax" property, but you heirs may be stuck with another tax on the same property. So the "death tax" or estate tax results in double taxation. What is maybe even worse are the rates. Estate taxes start at 37% and quickly escalate to 55% just for federal taxes. Most states impose their own estate tax on top of the federal tax. Federal tax laws will exempt between $600,000 and 1,000,000* worth of property from estate taxes.

But what if that exemption is not enough for your estate? There could be a problem considering the appreciation and growth that your estate will enjoy before your death, especially when you add in the death benefits of your life insurance policy. Good estate planning can easily double the individual exemption amounts for married couples, but some type of trust is required to accomplish this. Neither a will nor joint tenancy ownership of property will provide this double exemption.

For estates that are expected to be even larger than $1,000,000* for an individual or 2,000,000* for a couple, more advanced planning can often eliminate or painlessly handle another two or three million dollars in estate value. This may involve other types of trust programs that arrange some controlled, pre-death gifting plans. Sometimes a dedicated trust may be coupled with special life insurance arrangements to provide cash to pay the tax. Sometimes a private, intra-family annuity may be involved.

To arrange to have an Associate to help you with estate tax issues Contact Us

Gift Taxes
Anyone can make a gift to any other person of up to $10,000 per year with no gift taxes. A married couple can then give 20,000 to one person in any given year. A married couple can give 40,000 to another married couple. For annual gifts within those limits there is little special tax planning to do, and no gift tax return to be filed. In many of the cases of gifts which exceed those limits, they are made because the estate is too large for estate tax purposes. These extra large gifts then will usually be made to provide estate tax relief, by reducing the size of estate that will be left. Gifts exceeding the 10,000/20,000 annual exemption do require special planning and gift tax returns. Many of these larger gifts* will need to be done with special trust programs to reduce or avoid gift taxes altogether.

To arrange for an Associate to help you with gift tax issues, Contact Us

Problems From Long Term Medical Care
One of the most overlooked issues in estate planning, but one that will devastate many estates, are the costs associated with long term health care. Long term health care usually involves nursing home confinement for either the elderly or others who are seriously and long term injured or ill. Medicaid may pay for these costs, but not before the long term care patient's estate has first been liquidated. All the other estate and retirement planning will be worthless if long term health care needs hit the estate without Medicaid assistance. Proper estate planning with a type of trust known as a "life estate trust" can solve this and many other problems.

To learn more about the problems caused by a lack of long term care planning, Read the NAFEP article "Devastating Your Estate From Long Term Care Needs".

To learn more about long term care planning, review the NAFEP Premier II Life Estate Trust program.

Estate Transfer & Heir Planning
One of the big benefits of pre-death estate planning is the ability to name your heirs, specify the share of your estate they will receive, and dictate the manner and timing at which they get their share. Generally speaking this part of estate planning may be done with either a will or a trust. But as mentioned above it takes a trust to avoid probate, protect the estate from legal problems and Medicaid, and to maximize estate tax avoidance.

Some of the heir planning issues to consider are as follows:

Whether the heirs are to receive equal or unequal shares. There are several factors that can cause the estate owners to vary the share sizes they leave to each heir.

At what age should the heirs get their share, or should their share be paid in two or three portions at different age milestones.

Whether or not to leave certain property to specific heirs, such as the family home to one child and certain other property to the other child.

Whether or not to omit or disinherit any heirs.

How to deal with situations where a married couple each have different children from former marriages, but they want to setup one comprehensive estate plan. This may require dealing with issues such as one spouse having more children, or one spouse having made a much larger contribution to the estate.

Dealing with a marriage after you have built you own separate estate, which you want your spouse to benefit from, but you want the remainder of the estate to go to your heirs and not to your spouse's.

What to do in a case where one child has reckless spending habits and the parents fear he/she will blow the inheritance very quickly.

How to deal with mentally or physically disabled heirs.

Assuring that the heirs will use their share to pay for a college education, and do so in a prudent manner.

What happens if an heir predeceases the parents, but the heir leaves children.

How to deal with specific gifts to special heirs, such as grandchildren, nieces and nephews, charities, etc.

To arrange to have an Associate help you with estate transfer & other planning issues, Contact Us

* For several tax years up to and including 1996 the life time gift and estate tax exemption is 600,000.00 per person. This amount increases periodically thereafter by the following schedule:

Amount		Year
625,000.00 650,000.00 675,000.00 675,000.00 700,000.00 700,000.00 850,000.00 950,000.00 1,000,000.00		1998 1999 2000 2001 2002 2003 2004 2005 2006

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