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The Basics of Estate Planning

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.