You Don't Need a Country Estate to Need Estate Planning

By Mitchell J. Fielding
Analyst, mPower

In This Story: Three Types of Estates What about Wills? The Final Word on Your Last Wishes For the Do-it-Yourselfers

If you think you don't need an estate plan because you don't own an estate with horses boarded in the rolling countryside, think again.

Essentially, estate planning is a specialized strategy for safeguarding and disbursing your wealth, no matter how much or little.

Having an estate plan can help save taxes potentially paid out upon your death, provide care for yourself and your loved ones, and control what happens to the wealth you've acquired throughout a lifetime of work.

An estate is all assets held in your individual name, whether as sole or co-owner. From a legal standpoint, estates are classified in three main types, depending upon whether you are considering the tax you owe, the assets that go through probate, or the trusts you use. There is a lot of overlap in these terms.

In A Hurry? Read about Estate Planning At a Glance

It's never too early to develop an estate plan. An estate attorney, or financial planner, can help tailor the plan to you and your family's specific needs. It would most likely cover:

• Controlling the transfer of your property
• Passing on wealth to your heirs
• Providing for the care of your dependents
• Controlling decisions relating to your health
• Providing for your own care, should you become incapacitated
• Minimizing taxes

The Taxable Estate



To determine whether or not you owe estate tax upon your death—and how much you potentially owe—the IRS looks at all property in which you hold an interest. This includes:

An estate valued at less than $675,000 is not considered a taxable estate, and no estate tax return needs to be filed with the IRS. You do, however, have to file an income tax return if the estate earned over $600 in the year.

If you have assets valued at or over $675,000, however, you must file an estate tax return. The IRS determines the tax owed by examining what's in the estate, not what each beneficiary receives. This means your heirs may be forced to sell your property to pay taxes if you didn't leave enough cash in your bank accounts to cover taxes owed.



Careful planning will ensure that your history-buff niece will receive your early-American pottery collection rather than having it sold to cover your tax bill.

The Probate Estate

Probate is the legal process of administering an estate. It certifies a will after the death of the will-maker, and focuses on the will and probate assets: assets that are distributed under the laws of intestate succession.

Intestate succession laws are your state's interpretation of your wishes. They are applied by the probate courts, which are public proceedings.

Probate courts administer this process. They are set up to ensure that your assets are distributed according to your will, but as court proceedings, this information is public.

State laws determine attorney fees, conservator or guardian fees, and administration expenses, which can add up quickly.

What assets are subject to probate?

Whether you have a will or not, your assets are subject to probate if they total more than $60,000. However, the probate estate does not include: trust assets, joint tenancy property (including some types of bank accounts), life insurance proceeds, annuities, and employee benefits.

These excluded items pass automatically at death, either to your joint tenant or to the beneficiaries you've named. Be careful about naming your "estate" as your beneficiary, because if you do, these proceeds will become part of your probate estate.

If you don't have a will, or you have one, but your assets total more than $60,000, you'll have to use probate.

Depending on the size of your estate, probate can be costly and slow, and it is always public.

Your heirs may find themselves solicited by sales people who routinely review probate records. Also, heirs know exactly who received what—a potential source of conflict.

Remember, property with no will is subject to probate, so if you don't want your heirs to go through this process it's a good idea to have a will. Once again, even willed assets, if they total $60,000 or more, are subject to probate. Ways to avoid probate are discussed below and in our next article.

The Trust Estate



A trust estate includes any assets you own, that are held in a trust.

The trustee holds title to your property for your benefit, and the trust estate is distinguished from any income earned by it. The agreement that establishes the trust is called a trust indenture.

Many individuals choose to hold their property in trust to avoid probate. It is important to remember that all deeds, bank accounts, stock certificates, bonds, etc., must identify the trust as the owner to avoid probate. Further, the trust is private; its distribution is not a public event.

There are potential drawbacks to trusts, and their complexities will be explored further in the second part of this estate planning article series.

What about Wills?

A trust is not the same as a will.

A will is defined as the legal expression of a person's wishes as to the disposition of her or his property to take effect after death. A will grants your heirs absolutely no rights to your property until you die.

No beneficiary can prevent you from selling, gifting, transferring, or even destroying any or all of the property described in a will. No beneficiary can prevent you from changing any and all terms in the will. Although there are alternatives to wills, virtually every estate plan should have one.

Even if you implement a living trust and/or retitle your assets in joint tenancy, your plans may fail. The trust may be found defective, or you may acquire other assets and forget to put them into the trust. A will can ensure that your assets are distributed according to your plans.

The Final Word on Your Last Wishes

If you don't have a will or a will alternative, your property passes by the laws of intestate succession. These laws are drafted by state legislatures and are designed to be the state's "best guess" of your last wishes. These laws distribute your assets to your spouse and blood relatives. They do not provide for your friends no matter how close they may be.

If you have no living relatives, your property reverts to the state in which you live. Your fiancée or partner may then find that the state receives all your assets, in the event of your death.

If you have no living relatives … your fiancée or partner may find that the state receives all your assets in the event of your death.

For the Do-it-Yourselfers

You can prepare your own estate plan using a variety of resources available in bookstores and on the Internet. As these matters can be very complex and mistakes costly, hiring an experienced professional is worthwhile. A financial planner or estate attorney may provide invaluable advice.

It's a good idea to have a licensed attorney draft any legal documents such as a will, trust, durable power of attorney, or living trust. These documents are legally binding, and in some cases, will permanently and irrevocably change your rights to your property.

For help in finding an estate-planning professional, you can try the Financial Planning Association at http:// fpa@fpapanet.org, or to obtain a reference for an estate attorney, contact your state's bar association. Make sure you are comfortable with your choice and feel free to interview several candidates. Remember, the attorney (or other professional) works for you.

Estate planning consists of more than eliminating the possibility of bickering relatives and safeguarding your assets from public scrutiny. Crucial estate-planning and lifetime-planning strategies can also include living wills, a durable power of attorney for health care and/or property, and appointing a guardian.

Our next article will cover advanced estate-planning strategies, including:

• Different types of wills
• What happens if you don't have a will or a will alternative
• Probate horror stories, and ways to avoid them
• The power of the durable power of attorney
• Appointing a guardian

Our final article in this series will look at ways to lighten your estate tax burden.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

You Don't Need a Country Estate to Need Estate Planning

By Mitchell J. Fielding
Analyst, mPower

In This Story: Three Types of Estates What about Wills? The Final Word on Your Last Wishes For the Do-it-Yourselfers

If you think you don't need an estate plan because you don't own an estate with horses boarded in the rolling countryside, think again.

Essentially, estate planning is a specialized strategy for safeguarding and disbursing your wealth, no matter how much or little.

Having an estate plan can help save taxes potentially paid out upon your death, provide care for yourself and your loved ones, and control what happens to the wealth you've acquired throughout a lifetime of work.

An estate is all assets held in your individual name, whether as sole or co-owner. From a legal standpoint, estates are classified in three main types, depending upon whether you are considering the tax you owe, the assets that go through probate, or the trusts you use. There is a lot of overlap in these terms.

In A Hurry? Read about Estate Planning At a Glance

It's never too early to develop an estate plan. An estate attorney, or financial planner, can help tailor the plan to you and your family's specific needs. It would most likely cover:

• Controlling the transfer of your property
• Passing on wealth to your heirs
• Providing for the care of your dependents
• Controlling decisions relating to your health
• Providing for your own care, should you become incapacitated
• Minimizing taxes

The Taxable Estate



To determine whether or not you owe estate tax upon your death—and how much you potentially owe—the IRS looks at all property in which you hold an interest. This includes:

An estate valued at less than $675,000 is not considered a taxable estate, and no estate tax return needs to be filed with the IRS. You do, however, have to file an income tax return if the estate earned over $600 in the year.

If you have assets valued at or over $675,000, however, you must file an estate tax return. The IRS determines the tax owed by examining what's in the estate, not what each beneficiary receives. This means your heirs may be forced to sell your property to pay taxes if you didn't leave enough cash in your bank accounts to cover taxes owed.



Careful planning will ensure that your history-buff niece will receive your early-American pottery collection rather than having it sold to cover your tax bill.

The Probate Estate

Probate is the legal process of administering an estate. It certifies a will after the death of the will-maker, and focuses on the will and probate assets: assets that are distributed under the laws of intestate succession.

Intestate succession laws are your state's interpretation of your wishes. They are applied by the probate courts, which are public proceedings.

Probate courts administer this process. They are set up to ensure that your assets are distributed according to your will, but as court proceedings, this information is public.

State laws determine attorney fees, conservator or guardian fees, and administration expenses, which can add up quickly.

What assets are subject to probate?

Whether you have a will or not, your assets are subject to probate if they total more than $60,000. However, the probate estate does not include: trust assets, joint tenancy property (including some types of bank accounts), life insurance proceeds, annuities, and employee benefits.

These excluded items pass automatically at death, either to your joint tenant or to the beneficiaries you've named. Be careful about naming your "estate" as your beneficiary, because if you do, these proceeds will become part of your probate estate.

If you don't have a will, or you have one, but your assets total more than $60,000, you'll have to use probate.

Depending on the size of your estate, probate can be costly and slow, and it is always public.

Your heirs may find themselves solicited by sales people who routinely review probate records. Also, heirs know exactly who received what—a potential source of conflict.

Remember, property with no will is subject to probate, so if you don't want your heirs to go through this process it's a good idea to have a will. Once again, even willed assets, if they total $60,000 or more, are subject to probate. Ways to avoid probate are discussed below and in our next article.

The Trust Estate



A trust estate includes any assets you own, that are held in a trust.

The trustee holds title to your property for your benefit, and the trust estate is distinguished from any income earned by it. The agreement that establishes the trust is called a trust indenture.

Many individuals choose to hold their property in trust to avoid probate. It is important to remember that all deeds, bank accounts, stock certificates, bonds, etc., must identify the trust as the owner to avoid probate. Further, the trust is private; its distribution is not a public event.

There are potential drawbacks to trusts, and their complexities will be explored further in the second part of this estate planning article series.

What about Wills?

A trust is not the same as a will.

A will is defined as the legal expression of a person's wishes as to the disposition of her or his property to take effect after death. A will grants your heirs absolutely no rights to your property until you die.

No beneficiary can prevent you from selling, gifting, transferring, or even destroying any or all of the property described in a will. No beneficiary can prevent you from changing any and all terms in the will. Although there are alternatives to wills, virtually every estate plan should have one.

Even if you implement a living trust and/or retitle your assets in joint tenancy, your plans may fail. The trust may be found defective, or you may acquire other assets and forget to put them into the trust. A will can ensure that your assets are distributed according to your plans.

The Final Word on Your Last Wishes

If you don't have a will or a will alternative, your property passes by the laws of intestate succession. These laws are drafted by state legislatures and are designed to be the state's "best guess" of your last wishes. These laws distribute your assets to your spouse and blood relatives. They do not provide for your friends no matter how close they may be.

If you have no living relatives, your property reverts to the state in which you live. Your fiancée or partner may then find that the state receives all your assets, in the event of your death.

If you have no living relatives … your fiancée or partner may find that the state receives all your assets in the event of your death.

For the Do-it-Yourselfers

You can prepare your own estate plan using a variety of resources available in bookstores and on the Internet. As these matters can be very complex and mistakes costly, hiring an experienced professional is worthwhile. A financial planner or estate attorney may provide invaluable advice.

It's a good idea to have a licensed attorney draft any legal documents such as a will, trust, durable power of attorney, or living trust. These documents are legally binding, and in some cases, will permanently and irrevocably change your rights to your property.

For help in finding an estate-planning professional, you can try the Financial Planning Association at http:// fpa@fpapanet.org, or to obtain a reference for an estate attorney, contact your state's bar association. Make sure you are comfortable with your choice and feel free to interview several candidates. Remember, the attorney (or other professional) works for you.

Estate planning consists of more than eliminating the possibility of bickering relatives and safeguarding your assets from public scrutiny. Crucial estate-planning and lifetime-planning strategies can also include living wills, a durable power of attorney for health care and/or property, and appointing a guardian.

Our next article will cover advanced estate-planning strategies, including:

• Different types of wills
• What happens if you don't have a will or a will alternative
• Probate horror stories, and ways to avoid them
• The power of the durable power of attorney
• Appointing a guardian

Our final article in this series will look at ways to lighten your estate tax burden.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.