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Wednesday, October 5, 2011

Key tools used In estate planning

Estate planning does not have to be a daunting and expensive ordeal involving endless attorney, accounting and financial planning fees. A key in keeping estate planning cost effective and simple is to separate what is needed from what is not in an estate plan. Many times complicated trusts and financial instruments are not necessary, but even when they are it does not have to be a maze of confusion.Before further elaborating on estate planning tools, the following video is useful in introducing the concept of estate planning.

A good place to begin estate planning is assessing the size or total value of the estate; this includes tax deferred retirement accounts and will determine whether or not specific financial instruments are needed to bypass Federal Estate Tax.  For example, real property such as homes and land are potentially subject to both estate and inheritance tax depending on the value and the state in which the property is located. However, by using a qualified personal residence trust, the total estate value can be reduced according to the CPA Journal Online


Defined benefit plans such as employer pensions and defined contribution plans such as 401(k)s can be used to defer taxes on retirement income until it is withdrawn. These tax benefits allow estate owners to manage retirement income to optimize taxes paid to the Internal Revenue Service. These retirement planning benefits extend to beneficiaries if they roll over the inherited retirement account to the appropriate account. According to Schwab, a number of retirement accounts can be rolled over into Inherited Individual Retirement Accounts without tax penalty. 


Trusts are financial instruments that protect assets from taxes and designate distribution of estate assets in particular ways determined by the trust and its terms. Numerous types of trusts exist for various purposes such as guaranteeing money for grandchildren, and establishing a foundation upon death. In any case, when a trust is necessary discussing the options with an accredited estate planner such as an insurance agent accredited through the National Association of Estate Planners & Councils might be cheaper than an attorney or accountant with the same estate planning qualification. 


A Will is a key document probate courts use to allocate assets per the State Bar of California. These documents define trustees and verify beneficiaries for assets within the state's jurisdiction i.e. non-protected assets.  Different types of Wills exist so be sure to review them to identify which is best for you.  Be sure that the terms of other financial instruments such as trusts are conducive to the terms of the Will or this can hold up probate proceedings. The University of Maryland University College and The Porter County Communication Foundation have useful checklist s of information to include in a Will. 


Payable on death accounts are an easy way for account beneficiaries to avoid probate. It is a simple matter of going to a financial institution and filling out the appropriate forms. These types of arrangements only apply to FDIC insured accounts, but similar arrangements can be made with non-insured accounts in some states according to Kiplinger. For example, a brokerage account can also carry  similar terms in those states.