Learning More About Wills, Trusts and Estate Taxes
You may not need a will. Or you may want an elaborately designed trust drafted with the help of lawyers and bankers. Here is a quick guide to common inheritance situations:
* Suppose your uncle just died without a will, leaving your aunt and cousins as heirs. Assets such as a home, a car and bank accounts that your uncle and aunt held as joint tenants with the right of survivorship would continue to be held by your aunt. Insurance policies would be paid out to whoever is named as a beneficiary. But the distribution of assets your uncle held on his own could be decided in a lengthy and costly court proceeding that, in effect, writes a will for him.
* Suppose instead your uncle left a will--a public document signed by witnesses. The will clearly identifies how your aunt, cousins and other relatives should receive his assets, although it still must be authorized by a court in probate, which could take months and cost thousands of dollars in legal fees.
A will by itself does not avoid probate. California law generally requires probate for estates worth more than $100,000. Probate costs typically run about 4% of the gross estate.
Federal estate taxes, meanwhile, apply when an estate’s value exceeds a certain amount--currently $675,000 and rising to $1 million by 2006. Anything more than that is subject to tax rates that start at 37% and reach as high as 60% on large estates.
* Now suppose your uncle and aunt created a living trust, a private legal entity that has “ownership” of their assets while they retain daily control. When they die, the trust survives, so their estate would escape probate and instead be settled by a successor trustee.
There are no estate taxes on assets spouses inherit, but certain trusts can help save on estate taxes later. One type of trust, for example, in effect saves the tax exemption of the first deceased spouse in a separate account for eventual distribution to the children. In the meantime, the surviving spouse can benefit from the trust--by using its income or by living in a house that is in the trust. Estate planning lawyers can also set up more elaborate trusts that can, among other things, extend tax savings to grandchildren.
Useful estate planning books include:
* “Smart Guide to Estate Planning” by Laura Spinale (John Wiley & Sons Inc., 1999)
* “Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others)” by Gerald M. Condon and Jeffrey L. Condon (HarperBusiness, 1995)
* “Make Your Own Living Trust” by Denis Clifford (Nolo.com Inc., 2000)
Banks and brokerages offer advice and information on their Web sites. Other online resources include:
* https://www.fiduciarychoice.com. Corporate trustees pay to be listed on this site, which includes state-by-state directories of firms and, in some cases, links to their Web pages.
* https://www.estateplanningcenter.com. Robert Gallo, an Irrigon, Ore., estate planner, maintains this site, featuring a list of frequently asked questions.
* https://www.heirs.net. The site maintained by Heirs Inc., a beneficiaries’ advocacy group.
* https://www.nolo.com. The legal do-it-yourself publishing company’s site provides entries from a law encyclopedia that explains estate planning terms in plain English.
