An important aspect of planning for a family or business is planning for the distribution of assets after death. Several vehicles are available to accomplish the transfer of assets, including wills, insurance policies, trusts, and gifts. Tax considerations are important in the planning process, as are other aspects of planning, including guardianship, potential incapacity, and a process for making end-of-life decisions. Participants in the process are executors, trustees, beneficiaries, and guardians.
Wills are important for conveying a person’s wishes for distribution of his or her real and personal property after death, as well as assigning guardians as necessary, instead of relying on the state’s intestacy laws (laws for distribution of property in the absence of a testamentary device). People use irrevocable trusts to benefit beneficiaries; avoid federal estate and income taxes otherwise imposed on estates or individuals, and to protect assets in the trust from the claims of creditors. However, to have assets in a trust excluded from the grantor’s estate, the grantor has to give up all rights to the trust property to avoid estate taxes.
People use irrevocable life insurance trusts to remove life insurance proceeds from both a husband and wife’s estate to ultimately pass estate-tax-free to children and to protect proceeds from creditors of both the beneficiary and the grantor. However, “irrevocable” means that the trust may not be later changed, so decisions such as the identity and powers of trustees and interests of beneficiaries must be clear and definite when creating the trust.
People may make gifts to people who are not their spouses in the amount of $14,000 up to $10,000 (no limit on gifts between spouses) without subjecting the gifts to gift taxes (The IRS periodically reviews this value and adjusts as deemed appropriate.) However, the gifts must represent a present interest and not a future interest, which is generally the case in trusts since trusts are made to benefit the beneficiaries in the future, and the beneficiary usually has no ability to receive the trust assets at the time.
Wills identify executors to wrap up affairs of the estate, generally in the form of liquidating assets and terminating the estate. Trusts employ trustees for overall management of trust assets over a longer period to benefit the trust’s beneficiaries. The beneficiary is the person for whom the trust is created.
Trustees must be available and have the necessary experience to manage trust funds and deal with beneficiaries. A family trustee with business experience may be a good choice, having both experience and a genuine concern for how the family distributes its assets. In the absence of a qualified family member, a corporate trustee may provide experience and the necessary training in accounting, investments, and taxes.
Estate planning involves both financial planning and legal planning, considering specific assets, liabilities, and income as well as specific facts about the family. The experienced attorneys and accountants at McLaughlin & Nardi, LLC, bring all pieces of estate planning to the table, and can help you individually assess your needs and options. Call our office at 973-890-0004 or e-mail us.