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Tax Planning
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Tax Planning
ensures that assets are passed on to beneficiaries without being
unnecessarily diminished through Estate and Gift taxes. It is
important for an individual to be familiar with the taxes he or she may
encounter when planning an estate, where they apply, and how best to
circumvent them. Reducing and eliminating transfer taxes and
income taxes wherever possible is one of the main focal points of
planning an estate. The Gift tax, Estate tax, and the Transfer tax
are the main methods by which the government attempts to get its share
of your final estate.
Most people are aware that the government imposes a Federal
Estate Tax ('Estate Tax') and a Federal Gift Tax ('Gift Tax')
liability on transfers of property. However, few people are aware
that there is a second level of transfer tax imposed by Uncle Sam
on transfers made by an individual during life or at death: the
Generation-Skipping Tax ('GST Tax'). A lifetime gift-giving program
to one's children which makes use of an individual's $10,000 annual
exclusion from Gift Tax is generally a good estate planning tool.
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Legal Forms of Property Transfer
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An important initial step when preparing to plan
an estate is to be aware of the legal forms of property transference
upon death. Assets pass from an estate to recipients in one of
three basic ways:
Operation of Law: The immediate successor of some
forms of assets are predetermined by law. These assets include life
estates, joint tenancy, community property, and some accounts with
a designated beneficiary. They are passed on at death and are do not go
through the probate and ; will process
Contracts: Some forms of assets, such as
trusts (including revocable and irrevocable living trusts), retirement
benefits, partnership agreements, life insurance, annuities, and
buy-sell stock purchase agreements specifically define a beneficiary.
This form of transfer, like operation of law, passes to the defined
party without being subject to probate and wills.
Probate: Any monies or properties that do not
pass by operation of law or by contract is passed through probate or
intestacy proceedings. The remainder of any assets are processed by a
personal representative, called an executor or administrator. Any wills,
if they exist, are administered at this point, with whatever leftover
properties and funds passed out as defined by the executor.
Proper planning can reduce administration costs,
minimize estate and gift taxes, and prevent outside claims from
complicating the execution of the will. Armed with this knowledge,
you can ensure that your assets are properly passed down to the parties
that they are intended for.
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