Estate Planning and Trusts
28640
Finance > Taxes
Jun 19, 2007
crackmarketing
Estate Planning and Trusts
If you own property or assets of substantial value and have not yet thought about estate planning, it is time to start doing your calculations in order to put a plan in place. If you die having property, the state levies tax on your estate. As of 2007, property worth two million or above is taxed. Whoever is the recipient of your assets has to pay a hefty amount in estate taxes, which may be up to 45 percent of the value of the estate left behind by you. Thus, if you do not have an estate plan, it may lead to a considerable part of the assets you leave behind being soaked up in taxes instead of going to your loved ones. Estate planning consists of using effective methods to ensure that the estate tax implications are minimized after you death, and that the major part of your property/assets passes effortlessly to the recipients. Forming a bypass trust can be an effective way to reduce estate tax. This can be better understood with an example. Suppose a husband and wife, Tom and Linda, jointly possess assets worth around $4.5m. If Tom dies first, Linda gets all of the assets of Tom without having to pay any estate taxes by virtue of the provision of unlimited spousal estate tax exclusion. The assets of Linda would be valued at $4.5m thereafter. If Linda dies later, in the same year, when the estate tax rates are the same, assuming there has been no appreciation in the value of her estate, her estate tax on $4.5m would amount to $1, 905,800. Accordingly, her estate would be taxed $1,125,000 (after allowing an estate tax credit of $780,800), which her heirs would have to pay up. Since Linda availed unlimited spousal estate tax credit on the death of Tom, his estate tax credit of $780,000 stands extinguished. (The flat credit of $780,000 on estate tax liability is allowed against the exemption limit of $2m for 2007.) Now let us see the difference if Tom and Linda had created a bypass trust through a revocable living trust (also called a family trust). A trust can be loosely defined as a legal entity capable of owning property and other assets. Every trust has a grantor, also called a creator or settler, who grants property to a trustee. The trustee cares for and uses the property for a third person or beneficiary. In a trust, a single person can take on many roles. In a revocable living trust, Tom could have been the grantor, trustee, and beneficiary, all at the same time. The trustee is bound to act in strict accordance with the terms of the trust in handling the trust property. In the event of the death of Tom, the owner, i.e. the trust, still survives. So there is no question of probate proceedings arising, and a new successor to the deceased trustee can smoothly take over. To minimize estate tax, the revocable living trust can contain a provision that on the first death, of either Tom or Linda, a second or bypass trust would be formed. So, in the event of the death of Tom, $2m (equivalent to the estate tax credit for Tom) out of the $4.5m would be transferred to the bypass trust. In such an eventuality, the bypass trust acquires its own identity and irrevocable status, and thereafter would file its own tax returns. The assets of this bypass trust are used for the welfare, heath, upkeep, and maintenance of the surviving spouse, and after the second death, would be available for the subsequent beneficiaries. Therefore, on the death of Tom, Linda would get the remaining $2.5m without paying any taxes, on account of the unlimited spousal estate tax exclusion. On the death of Linda, the bypass trust and Linda being separate entities, the value of the bypass trust assets would not be taken into consideration to assess the estate tax of Linda. Thus, the estate tax assessed on the estate of Linda at $2.5m, after deducting the estate tax credit of Linda, would come to just $225,000 as against $1,125,000 in the absence of a bypass trust. This is a clear saving of $900,000. There are other types of trusts that serve the same purpose for other situations. (All figures are approximate, and relate to 2007).
Former IRS Agent offers California Estate Planning. CPA Firm Murrary and Young offers expert accounting consultation to those in and around the California Area. Visit http://www.april15.com
send email to crackmarketing
Write a Review
Add to My Favorite
Refer it to Friend
Report Article
Other links owned by this user
Rock climbing is the act of climbing vertical rock structures. You can sort out rock climbing into two wide groups namely free climbing and aid climbing.
Category:
At times, you may feel depressed and might think about how you would survive nursing school. Well, there are a few guidelines that are discussed in this article, to help you overcome the pressure levels of nursing school and how to cope up with it.
Category:
Business coaching is a profession that provides business-related instructions and directions through encouragement and proper guidance. It helps in enhancing the efficiency of the employee and achieves professional growth. It boosts your performance and s
Category:
Real estate investment is considered to be very lucrative as compared to other asset building methods. There are many investors who are always ready to invest in the property market of Florida since it is one of the hottest markets today.
Category:
Spring time around hence spring cleaning can sometimes seem to be very irritable, particularly if it has been ignored throughout the year.
Category:
To the first inhabitants of the valley, 'the Wappo Indians', the term 'Napa' meant the land of many, conjuring images of a vast sprawling land that was home to salmon-filled waterways, green valley floors with multitudes of wildcats, black bears, grizzlie
Category:
Usually, emergency situations call for the temporary repair of the roof. Sometimes, the roof just can't wait till the roofing professionals act.
Category:
Franchising can be a great option for attempting a tried and successful business plan and running your own business, based on that model.
Category:
Mentoring and coaching differ in various ways. In mentoring the mentor acts as a counselor, who provides advice in relation to career paths, helps in understanding and grabbing development opportunities and also helps in accepting the concept that you nee
Category:
The students who complete their school education successfully from an accredited college or university in the United States are offered accredited high school diplomas.
Category:
More and more people are getting enthusiastic about rock climbing and the sport is now gaining popularity and attracting thousands of sports enthusiasts. Rock climbing is categorized and each type has different features and methods.
Category:
A number of 'returning' students have taken an admirable step to safeguard a successful future by returning back to school to study. On the other hand, the question arises as to what kind of credentials are supposed to be acquired.
Category:
When you decide to file a Chapter 13 bankruptcy, the legal process grinds into gear. The petition, the document asking the court to bring you relief under chapter 13 of the United States Bankruptcy Code, is a simple two page form, signed by all debtors an
Category:
Limo rental services in Sacramento are very affordable and it is highly recommended to hire one for a couple of hours, for a night out of fun. The nightlife in the city has something to offer to everybody.
Category:
If you homeschool your kids then you should get in contact with your local school board to find out if there are any such rules or whether you are free to create a plan that is best suited for your child.
Category:
Customers are the most important elements for the success of a business. Attaining and retaining the customers is one of the most important and essential tools for the success of any business.
Category:
If you are nursing graduate and looking out for a job opening then you can select an opening as a physician nurse, as this is one of the most preferred in the nursing profession that offers lots of benefits as compared to other nursing job profiles.
Category:
Heavy Equipment(HE) comprises of very bulky machinery like cranes, forklifts, excavators, and bulldozers that are very heavy and need specially trained people to operate them. These people are called as heavy equipment operators and are also responsible f
Category:
Now that you are the owner of your home office, you may have to overcome many difficulties. Record keeping is one such major and critical responsibility.
Category:
If you are a striving businessman, then a home office can be a room in your house that holds a lot of importance. It can be either used as a business center or a hideaway, therefore try and make it attractive, functional yet comfortable.
Category:
Other links at Finance > Taxes
This Article summarizes a solid strategy for enabling C-Corp shareholders to enjoy a substantial gain in take home cash compared with a traditional asset sale scenario.
Category:
Get the tax break you deserve and have full rights to if your home or business has been invaded by mold that you had to have removed.
Category:
When you are working from home, there are several things that you should always be doing. One of these things is to make sure you are keeping the right records for your business.
Category:
It is the first year of your business and that time of year has come for you to file your business tax return.
Category:
Estate tax planning should be done once you acquire a property above two million dollars, as this is the current limit up to which no estate tax is applicable. In case you avoid it then your beneficiaries or your heir may have to shell out 45 cents on eve
Category:
Site Sponsor
Directory Statistics
Articles: 68309
Categories: 501
Yahoo Entertainment
