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Estate planning is often only considered essential for wealthy or older
individuals. If you have loved ones, you should have some form of estate plan
regardless of your level of wealth.
The Basics
1. Estate planning means providing for your family after you are gone. It
allows you, not the court, to make important decisions about caring for your
loved ones and the disposition of your property.
2. With a proper estate plan you can make these major decisions:
3. Who do you want as the executor to settle your estate? That person
should be someone who is qualified, trustworthy and understands your wishes.
4. How will any minor children be protected? This includes naming a
guardian on the death of both parents and decisions about the future
financial security of the children.
5. How will your assets be distributed? Wills are used to designate who
will receive your assets. Trusts may be useful for the ongoing management and
distribution of your assets.
6. How can the costs of administrating your estate be minimized? Proper
planning can reduce probate fees and any estate taxes.
Federal Estate Taxes
The 2001 tax law changes made significant changes in the taxation of
estates. In essence, the size of estates that will end up owing no tax is
increasing. In addition, the estate tax rates are being reduced.
These changes continue through 2009. Then, the entire estate tax is
eliminated, but only for 2010. In 2011, the rules in existence before the
changes (the 2000 rules) are reinstated. Many observers believe that these
new rules will be reviewed, and potentially changed, before all the
provisions of the new law take full effect.
How does an estate get taxed?
The federal government levies a tax, payable by your estate, with rates up
to 48% (for 2004) on the largest estates. The tax is charged against the
value of the estate after allowable deductions are taken. Deductions include
burial expenses, existing debts, charitable contributions and accrued taxes.
In addition, any assets left to a surviving spouse are not included in the
taxable estate. After the estate tax is calculated, there is a credit against
that tax. The result is that many estates pay no tax. The amount of the
credit is increasing and below is a chart indicating the size of taxable
estates that will be subject to tax after the credit.
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