Basic Financial Planning for Newlyweds
Step 8: Have an Attorney Draft Certain Essential Documents
Your Initial Financial Plan:
Have You Read...
Plan Now or Pay Later: Judge Jane's No Nonsense Guide to Estate Planning
Too little, too late! Everyone regrets missing the boat now and then. But when it comes to estate planning, too little, too late means lessoften a lot lessfor your heirs. That's where this straightforward, easy-to-use guide comes in. Judge Jane Lucal meshes her years of experience as a probate judge with sound financial planning concepts. Having seen every mistake imaginable firsthand in the courtroom, she helps families anticipate the pitfalls of estate planning and capitalize on the slew of techniques that can maximize the transfer of wealth from generation to generation.
To order this book from Barnes&Noble.com, click on Plan Now or Pay Later
Are You a Do-It-Your-Selfer?
Thanks to the Internet, do-it-your-selfers can now find plenty of information on-line that enables them to do almost anything on their own. If you'd like to save some legal fees, take a look at the wills and living wills available at LegalZoom.com.
What Legal Documents Do Most Couples Need?
Contact an attorney to help you with these items!!
Good News for People Who Live Beyond 2001
Effective for 2002, the estate tax rates will decrease, and the amount exempt from tax will increase over the next ten years, according to the following schedule:
It should be noted that even though all of the law's provisions are not fully phased in until 2010, the Act contains a sunset provision rescinding the entire law in 2011 unless a future Congress acts to extend it.
The Basics of Basic Estate Planning
Just as most people have at least a basic understanding of income taxes, it is fair to say that most people lack a basic understanding of estate planning. What people find to be most surprising about the estate tax system is that, upon the death of an individual, the government can take as much as 55% of that person's wealth in the form of estate taxes. (I guess they figure a dead person can't complain too much about paying taxes.) You don't even need to be that wealthy to find yourself in the 40% marginal estate tax rate. When you factor in your home, retirement plans, and life insurance, the fair market value of all of your assets that will be taxed upon your death probably add up to more than you think.
How does the estate tax system work?
Anyone who dies during 2001, the first $675,000 of their assets will not be subject to estate taxes. If a person's assets exceed that threshold, the excess is taxed at the following rates:
Assume an unmarried individual dies with the following assets:
The total taxable estate for this individual will be worth $1,000,000 and the estate taxes on $1,000,000 will equal $125,250!! ([750,000 - 675,000]*.37 + [1,000,000 - 750,000]*.39).
What if you are married?
If you are married, the rules allow you, upon your death, to transfer everything to your spouse estate tax free. Known as the marital deduction, this is a nice short-term solution, as the surviving spouse can take ownership of all of the assets without paying any estate taxes to the federal government.
Taking advantage of the marital deduction, however, could cause the estate of the surviving spouse to be hit with a huge estate tax bill. For example, assume a married couple who owns the following assets:
When the first spouse dies, all of the assets transfer to the second spouse. When the second spouse dies, the taxable estate is worth $1,350,000 and the estate will be subject to estate taxes of $270,750. ([750,000 - 675,000]*.37 + [1,000,000 - 750,000]*.39 + [1,250,000 - 1,000,000] * .41 + [1,350,000 - 1,250,000]*.43) By taking advantage of the marital deduction, the spouse that died first did not benefit from the $675,000 exclusion available to him.
What can be done to minimize the estate taxes?
One of the principles of basic estate planning is to make sure that each spouse takes maximum advantage of the $675,000 exclusion. To minimize the estate taxes that will be paid upon the death of you (and your spouse), there are three steps that you need to take.
Let's work through another example. This time, assume the married couple has two assets: stock in Company A worth $675,000, and stock in Company B worth $675,000. Earlier this year, this couple met with capable estate planning attorneys, had two wills drafted, and changed the ownership of Company A to the husband's name and Company B to the wife's name.
Two weeks after all the documents were properly executed, the husband died. Instead of having the stock of Company A go to his wife via the marital deduction, the will instructed that the stock be used to fund a trust. If necessary, the wife can use the income and assets of the trust to maintain her lifestyle, but otherwise, the trust will stay intact and will go to the husband's heirs upon the death of the spouse. Since the amount that funded the trust was worth $675,000, the husband's estate was not subject to any estate taxes.
Two weeks after the husband dies, the wife unfortunately dies as well. As instructed by her will, the stock of Company B passes to her heirs. Since the value of the stock is only $675,000, there are no federal estate taxes to pay. In addition, the stock of Company A, which is in the trust, also passes to the heirs estate tax free. By having two wills, and making sure that no assets are held jointly, a married couple with assets of $1,350,000 (in 2001) can avoid paying any estate taxes. If you look at the earlier example in which the couple took advantage of the marital deduction, the estate of a couple with assets of $1,350,000 (in 2001) who did no estate planning ended up paying $270,750 in estate taxes.
Here's some additional articles about legal issues that you might find interesting:
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