One of the major headlines recently has been the elimination of
the Estate and Gift Tax, or the Death Tax, as part of President
Bush's tax cut. People are now thinking that they do not need
to do any planning whatsoever because the Death Tax is going to
disappear so why do I need to plan for when I pass away (the estate
tax is really not going away and that will be explained later
in this article). Well, planning for estate taxes is only one
reason why you need to plan for when you pass away.
Not having a Will can have unintended consequences.
Dying without a will is called "Dying Intestate".
If you die intestate, the Court, not you appoints a person to
administer your estate, and then you have to follow state law
as to how your assets are distributed. Most people do not realize
that if you are married, have children with that spouse and
pass away, all of your estate does not go automatically to your
spouse. In actuality the first $50,000 of your estate goes outright
to your spouse, then your spouse gets one-half of the estate
and your children get the rest. If you have no children but
a parent or parents are alive, the first $50,000 goes to your
spouse, then your spouse gets one-half of your estate and your
parents get the rest. Surprised?
By not planning, you can truly have unintended
consequences. One way to plan is to own your property and have
your accounts titled as joint with the right of survivorship.
This basically means that the survivor gets the whole property
when the first party passes away. It does not matter what your
Will says because this property goes to your beneficiaries outside
of your Will.
Another way to plan is by beneficiary designation.
This is basically the person or persons you designate to receive
an IRA or the money from an insurance policy by filling in the
box on a form.
These both can have unintended consequences.
It may prevent you from doing planning to reduce or eliminate
estate taxes. Or you may have named your ex-spouse as a beneficiary
on your IRA when you never planned on them receiving anything
from you.
It is therefore imperative that you don't just
look at your estate in a vacuum. You need to consider who you
have designated as a beneficiary on your insurance policy or
retirement account and who you own property jointly with. A
basic and essential part of your estate plan includes your Will.
A Will is basically your instructions for where your property
is going to go. In your Will, you designate who is going to
be responsible for making sure your instructions are going to
be carried out. This person is called the Executor. Then if
you have minor children, you appoint a guardian for your children.
And finally, you name a Trustee for any trusts you may have
created under your Will.
