Estate Planning
Estate Planning Saves You Money.
What Is Estate Planning?
Jerold R. Gilbert is a Denver Estate Planning Lawyer. A Colorado Wills and Trust attorney.
Estate Planning is the process of preserving, controlling and maximizing your estate for your beneficiaries. Common estate planning techniques utilize various and different types of trusts.
Using a Revocable Living Trust is a very
common estate planning technique. Why should you consider estate planning? The best reason is to
preserve your wealth to provide more for your spouse, your children and grandchildren.
The money you save and pass on to them can be enormous! For taxable
estates, the savings in estate tax can easily exceed $50,000.00.
Many middle class families will have estates that will be subject to
federal estate tax. As we explain in more detail below, not
having an estate plan in place at the time of death can cost your family a huge sum of
money.
Here are some key reasons for a trust:
- Revocable Living Trusts are a common, effective and efficient way to preserve your wealth.
- Trusts provide a simple and direct transfer of property to your heirs after you are gone.
- Trusts may eliminate the need for "probate" of your estate and reduce legal fees by tens of thousands of dollars.
- Trusts can save you a significant amount of money and time.
- Trusts may reduce or eliminate estate taxes.
- Trusts may eliminate the need for court involvement in your affairs.
- Trusts let you control how your property is handled.
- Trusts allow you to keep your personal information private.
- Trusts are easy to maintain and do not intrude into your daily lives.
An Example Of How Estate Planning Saves Money.
Take a common husband and wife scenario where the combined wealth they've accumulated over their married life is $1.5 Million. The property is held in joint tenancy and made up of real estate (the family home), mutual funds, Certificates of Deposit and life insurance. Even married couples with modest real and personal property can have an estate exposed to estate tax. Life insurance benefits can easily push the value of the estate over $1 Million. Most don't realize the simple fact that a relatively inexpensive life insurance policy can expose the death benefits to a tax of 50% of the amount over $1 Million in total assets. (We explain more in the following discussion).
Death of the First Spouse:
On the death of the first spouse (say the husband), all of the
property immediately goes to the surviving spouse without any need
for probate. The property is completely free of Federal Estate Tax
because the
estate tax law provides a 100% exemption for all property going to
the surviving spouse.
Federal estate tax law also provides an exemption called the "lifetime exemption". Currently the lifetime exemption protects property equal in value up to $2.0 Million. This amount will change over the next 3 years, going to $3.5 Million in 2009, then unlimited for 2010, then back to $1 Million in 2011 and beyond. The rate of tax above the exemption amount is currently near 50% for each dollar not otherwise exempt.
Why do I mention the lifetime exemption amount with regards to the scenario I just described? Simply because in that situation the lifetime exemption amount of the first spouse to die was not used. It was completely wasted. Also, in my analysis, I always assume that deaths will occur in 2011 or following. It is a prudent assumption as the greater exemption amounts will only be available for the next 3 years. Consider this for yourself and if you have a reasonable belief that you will live beyond January 1, 2011 then you had better assume that your estate will be using the lower exemption amount of $1,000,000.00 (post 2010).
Death of the Second Spouse:
Why is the lifetime exemption amount important? Well, for one reason, even though
all is well and good with the tax free transfer of property to the
surviving spouse, lets say that in a few years the surviving spouse
(the wife) also dies. On her death, her estate is valued at
the same $1.5 Million. However she does not have the marital
exemption to use (because she died single) and has only the lifetime
exemption amount to cover her estate from the tax... remember:
$1,000,000.00 (post 2010).
From 2006 through 2010 her estate will be completely covered and exempt from tax for the values we've assumed and no dramatic increase. However, should she die on or after January 1, 2011 her estate will only protect $1 Million from federal estate tax because the lifetime exemption amount is reduced beginning in 2011.
Therefore, in this scenario, her estate will have roughly
$500,000.00 of assets exposed to the tax and the estate will pay
approximately
$250,000.00 in federal estate tax.
OUCH! That's real money taken away from your
children!
There is good news, however....This can be avoided.
Now With Estate Planning Techniques Applied: The Revocable Living Trust with Marital Deduction Provisions.
In this scenario, both spouses have the same property as before, but instead of placing all of it in joint tenancy, before either die, they establish a Revocable Trust containing estate planning provisions designed to maximize the marital deduction and the lifetime exemption amounts.
The property (house, mutual funds and CD's) are placed into the trust. The trust is designated as the beneficiary of the life insurance policy and receives the death benefits.
On the death of the first spouse (husband gets it again) the revocable trust is divided into two separate trusts, one for the deceased husband and one for the surviving wife. The assets going into the husbands trust (the deceased spouse) will be roughly half of the assets or up to $1 Million (the lifetime exemption amount). The assets in the husband's trust will pass free from estate tax because they are completely covered by his lifetime exemption amount of $1 Million. His estate pays NO tax.
The wife gets the income and benefit of the husbands trust property and enjoys it much the same as if she truly owned it. However for estate tax purposes those assets are not considered hers nor subject to the estate tax on her death. Therefore on her death a few years later her estate is valued at roughly $750,000.00, well under the $1 Million lifetime exemption amount and her estate pays NO tax as well.
Therefore, on the death of the second spouse, both trusts then merge and
distribute the assets ($1.5 Million) to the couple's children and
heirs.
As a result, in this scenario, for a transfer of $1.5 Million in
assets to their children they pay
$0.00 ( ZERO-ZIP- NOTHING ) federal estate
tax.
By using this trust technique, they just ...
saved
$250,000.00
...
That's real money now available to your children that would have
been lost.....had you done nothing!
Also, if the estate grows larger the maximum
protection is even greater and would cover up to:
$2 Million in assets protecting your family against a maximum tax of
$500,000.00.
Your investment in estate planning has just made you a hundred-fold
return!
Therefore, estate planning is a very good investment by any standard of measure. Again I emphasis, with the use of commonly and readily available life insurance benefits, married couples can create a taxable estate even though they are not considered rich. From my experience, many such people are unaware that their estate could be subject to the hefty Federal Estate tax.
The cost of estate planning is very reasonable compared to the cost of probate and the federal estate tax.
Our flat fee arrangements cover the complete work and is not piecemeal as practiced by some. We continue to work with you and do all funding of the trust with any and all assets you decide to place into it. Nothing is left undone or yet to be completed. We work with you from start to finish, all for the initial flat fee, plus expenses.
Estates having medium to large asset value, real estate equity and potential for growth are good candidates to benefit from the tremendous savings provided by estate planning. Estate Planning with the use of trusts can save a tremendous amount of money, time and trouble. It is an exceedingly good investment. Here are some types and kinds of trusts and other estate planning tools:
-
Revocable Living Trusts - Grantor Trusts
-
Charitable Remainder Trusts - CRT- CRIT- CRAT- CRUT
-
Irrevocable Life Insurance Trusts - ILET
-
Grantor Retained Trusts - GRT- GRIT- GRAT- GRUT
-
Qualified Personal Residence Trust - QPRT
-
Crummey Trusts
-
Family Limited Partnerships - FLP
-
Private Family Foundations
A WORD OF CAUTION REGARDING SOME ESTATE PLANNING PRACTICES.
Once hired, we are your lawyers. We represent you and are not in the pocket of some investment broker or financial planner. We are not "his guy" but, as your lawyer, we act independently, representing your interests, fully and completely. You deserve the best and most complete representation available. To that end we are not part of some prepaid legal or insurance "benefits plan" who may think of you as so many "cattle". Neither do we work with "Estate Planning Mills" that may have been heavily promoted by your church, civic organization or other group. No, as our client, you are a unique, special and valued person getting our best and finest attention possible. We will take your calls and promptly respond to all your questions, comments and concerns. We wouldn't have it any other way.
Call us to review your situation. Our first meeting is free and you pay us when you hire us. We charge a flat fee for most trust work.
We accept Visa, MasterCard, Discover and American Express. Call us for details.
"Estate Planning Is Wise Planning."
Contact Information
Jerold R. Gilbert Law Offices, P.C.
6200 S. Syracuse Way, Suite 125
Greenwood Village, CO 80111
720-748-6600 office