Don’t leave behind a legacy of needless taxes, legal bills and disputes. Only a properly written will can ensure that the assets in your estate go where you want them to, from cash gifts to complex trusts. Answers to these basic questions can help protect your assets and your heirs.
Whether you draw up a will yourself or seek professional guidance, start by creating a fact sheet of relevant data. Identify anyone with a stake in your estate: spouse, children, grandchildren, parents, siblings, etc. Then list your real estate property, personal possessions and financial assets, their value and where to find them (or records of them). Once you gather financial information, use Quicken to record it and keep it up to date. It’s a good working estimate of the value of your estate, which is the basis for estate taxes if any are due.
Use the value of your assets, after expected taxes, legal fees and burial costs, as a framework for individual bequests. Specify each gift either as a percentage of assets or as a fixed amount. Fixed sums are usually simpler to execute than percentages of total assets.
Wills often specify three separate roles subject to state laws. An executor administers the settlement of your estate, hopefully with an eye to efficient execution and costs. A trustee manages any assets until they are distributed to your beneficiaries. A guardian raises minor children, if the situation warrants. In case you are incapacitated before death, as often happens, you also should confer power of attorney on someone to manage your financial affairs, subject to provisions that you stipulate.
A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. Trusts serve many purposes, including financial support for minor children or charitable aims as well as providing personal and financial safeguards for beneficiaries. They are generally classified as either living trusts or testamentary trusts. Testamentary trusts are created as part of a will and become effective upon the death of the person making the will and are commonly used to conserve or transfer wealth and avoid unnecessary taxes.
Spouses can inherit assets without a federal tax, but assets and gifts transferred to other heirs may trigger taxes. The amount of tax depends on prevailing Federal and state laws. For estates created in 2009, taxes were due on assets worth more than $3.5 million. On December 31, 2009, however, the Federal estate tax expired completely. This tax will resume in 2011, with an exemption limit of $1 million. Meanwhile, current tax laws allow you to give away $13,000 per year, per person, during your lifetime, without triggering a gift tax.
Many Americans will money or property to their favorite causes. You can leave all or partial interest in most assets to a legitimate charity that is eligible for tax-deductible contributions. The IRS makes this determination, so you can find out which charities qualify by looking on the IRS website (irs.gov). There may also be rules for determining the value of assets with no obvious market value, and limits on the amount of the tax deduction you’re allowed to take. Gifts left to a regulated public charity that seeks donations, for instance, receive different tax treatment than assets left to a private family foundation or trust that your heirs control.
In the final analysis, it’s true that you can’t take it with you. But by writing a proper will, at least you can control where it goes.