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Products: Fundamentals of Estate Planning: Estate Planning Options

Estate Planning Isn’t Just for the Wealthy Anymore
Although most prefer not to think about the inevitable, you will eventually die. Whether by a tragic accident, an illness or simply old age, there comes a time when you will no longer inhabit this earth. Before that happens, you should establish an estate plan to protect your family and your wealth. Without such a plan, you may create needless heartache and loss for those left behind.

What is an estate plan?
Establishing an estate plan – a combination of legal documents that help protect your assets during your lifetime and upon your death is essential to defending what is truly yours. Along with protecting your assets and loved ones, creating an estate plan will also help to avoid or reduce the estate taxes you may owe Uncle Sam. Note that when you die, you can pass on an estate of unlimited value to your spouse with no unfavorable tax treatment. However, once your spouse dies, there may be substantial tax consequences – causing heirs to receive far less than they should. Currently, you may leave up to $1 million tax free to heirs other than your spouse; anything in excess of that amount will be taxed. The exemption on the first $1 million of estate taxes is scheduled to increase annually until 2009, when the maximum will reach $3.9 million.

Estate Planning Tools
Estate planning is appropriate at any stage in life, and it’s not just for the wealthy anymore. If you own assets such as a home, car or investments, you need an estate plan. This need becomes crystal clear when you consider the estate of the average middle-class couple can easily surpass $1 million*. Estate Planning is often a complex process, and you may need assistance to develop a plan that meets your personal needs. Utilize your financial advisor or an estate-planning attorney to ensure that all affairs are in order. Also consider making the following documents part of your estate plan.

  • Every adult needs a will. A will, considered the foundation of your estate plan, is a legal document that instructs how your assets should be distributed to your heirs at the time of your death and will enable you to:

    • Ensure your property and possessions are distributed according to your wishes,

    • Select guardians for minor children,

    • Make charitable donations, and

    • Choose an executor to carry out your instructions.

  • Describe your funeral wishes in a separate document from your will and give those papers to a trusted family member, friend or lawyer.

  • Establish trusts for asset control. A trust is a legal entity into which you transfer assets for the benefit of yourself and others. Certain trusts can be used to reduce income taxes and protect future gains from estate taxes. Other trusts can provide for minor children, surviving spouses or charitable organizations. The assets in a trust do not pass through the probate process and ensure privacy in settling your estate.

  • What if you become incapacitated? Should you become unable to communicate your wishes – due to serious illness or injury – a durable power of attorney gives another individual authorization to manage and oversee your financial affairs. Moreover, an advance directive, which includes two separate legal documents, allows you to specify medical care guidance should you become unable to speak for yourself. A living will gives the specific instructions, while a medial power of attorney identifies a representative to make decisions on your behalf. Including each of these documents in your estate plan ensures control of your needs and requests.

Planning for your future
Developing an estate plan is a complex process that involves the arduous task of discussing the prospect of illness and death with family and friends. The process is imperative, even if your spouse or children are reluctant to discuss such matters. Delaying decisions about your estate may result in damaging consequences. Without a will, the state will determine the distribution of your assets and the guardianship of your minor children. Without a trust, many of your assets may pass through the time-consuming and complicated probate process. And without medical directives, your final health care wishes may not come to pass.

Equally important, remember to review your estate plan on a regular basis and update the plan after any major life change, such as marriage, divorce or the birth of a child. Certain states have differing laws, so make sure to re-examine your plan after moving to another state. Maintaining an estate plan helps to ensure the financial security of your loved ones and to avoid unnecessary taxation. With proper planning and the help of financial professionals, your assets can be passed on to your heirs – not the IRS.

Our investment professionals can help you get started with your estate planning. Contact us today!

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