Family Estate Planning: Not Just for the Rich and Famous

Family estate planning is no longer for the rich and famous alone. It is for anyone who wishes to control the distribution of assets, name the guardian of dependents, and reduce the tax burden to heirs. While attorney’s fees will be incurred in the short run, the cost savings and peace of mind in the long run can be well worth it. Failure to plan can create conflict among family members and incur unnecessary expenses for your heirs. Estate taxes alone can run to nearly half of what you want to leave to them.

There are generally four basic steps to begin the estate-planning process:
• Gather all personal and family information and decide whom you wish to benefit.
• Take an inventory of your assets and liabilities in order to determine your personal net worth.
• Decide what you would like to accomplish and rank these objectives in order of priority.
• Consult with a qualified attorney who can help you identify the best legal plan and strategies to meet your goals and objectives.

Every person is currently allowed to transfer $1.5 million in assets to their heirs — during life or at death — free of federal estate tax. This amount, known as the unified credit exemption equivalent, will increase between now and 2010.

While this may seem like a large amount, it includes life insurance proceeds, future inheritances, and corporate stock options as well as investment and personal assets. One goal of your estate plan should be to make maximum use of this unified credit exclusion amount.

A will traditionally has been the cornerstone of most estate plans, and it is still important. Your will may be used to appoint an executor to manage and settle your estate, detail how your property will be distributed upon your death, and designate the guardian for your children if necessary.

After your death, the executor will administer and settle your estate through probate. Probate is the process of the court-supervised transfer of a decedent’s assets in the manner provided by a valid will.

Because of the public nature of the proceedings, delays and costs involved with probate, many people try to avoid it. Some assets, by their nature or registration, will automatically pass to heirs without probate. Examples include life insurance, individual retirement accounts, retirement plans, transfer-on-death registered accounts, property held in joint tenancy with rights of survivorship, and property held in a living trust.

Another way to avoid probate and minimize estate taxes is to gift a portion of your estate before your death. You can take advantage of the annual gift-tax exclusion of $11,000 per recipient. Together, a husband and wife can gift up to $22,000 annually to any individual.

This figure will be indexed for inflation in $1,000 increments. Monetary gifts of any amount that are used to pay for qualified medical expenses or school tuition are also tax-free, provided the money is sent directly to a school or medical provider.

Trusts are another popular estate-planning tool. A trust can help you manage assets even before your death. Depending upon the type of trust established it may be used to manage assets for your family in the event of your death, to avoid probate, or to minimize estate tax.

With the help of your legal, accounting and financial advisors, you can explore various trust options. Some trusts allow cash to be removed only at the discretion of the trustee. Others may specify that the donor receive income from the trust while living, with the principal passing directly to heirs upon death.

Under the Tax Relief Act of 2001, the federal estate tax is gradually phased out and disappears in 2010. However, the Act does not apply after the end of the year 2010.

Unless Congress takes further action, the 2001 rules, rates and exemptions come back into effect in 2011 — including the federal estate tax. This will lead to much uncertainty in estate planning.

Estate planning is a continuous process. It is important that you periodically review your estate plan to be sure it matches your current situation and objectives. As changes occur, your plan should be reviewed and updated to optimize the benefits that can be derived and to account for changes in your personal situation and the tax laws.

Wachovia Securities, LLC does not provide tax or legal advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. Trust services are offered through Wachovia Bank, N.A., a national banking association (chartered by the Office of the Comptroller of the Currency) and a wholly owned subsidiary of Wachovia Corporation.

The accuracy and completeness of this article are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of Wachovia Securities or its affiliates. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.

Provided by courtesy of Samuel K. Van Allen, a financial advisor with Wachovia Securities in New York, NY. For more information, call 917-351-2014. Wachovia Securities, LLC, member New York Stock Exchange and SIPC, is a separate non-bank affiliate of Wachovia Corporation. ©2006 Wachovia Securities, LLC.

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