Advantages to Estate Planning
The most common questions about estate planning is “Do I really need to do an estate plan?” or, “Why do I need to do an estate plan?” If you really care about your love ones, you need to plan ahead and stay on top of things to save some time and protect your family in the event of your death. It is also a great financial planning tool that will improve handling assets, savings, investments, and real estate after the owner’s death. Advanced estate planning can be used to perpetuate family values and protect assets for the benefit of future generations. Estate planning also helps reducing taxes by having a better understanding on specific perks, like gift taxes, charity give away, appreciated stocks, and trust benefits. There are four distinct objectives of a proper estate plan. Many times a plan is perceived as only having one, or possibly two, of those objectives. Since there may be different specialists involved in the Estate Planning process, such as Attorneys or Accountants, an individual should be sure to not only realize such shortcomings in a plan, but to safeguard against it. A truly comprehensive estate plan will address all four of these objectives: create liquidity, avoid probate costs, reduce taxes, and execute dispositive documents. Liquidity means the ability to convert assets to cash without giving up value. Because of death and its related costs that must be paid within a short time following death, one must be absolutely certain that the estate has sufficient liquid assets to cover such costs. Realistically it would seem that the annual increase in the cost of dying has exceeded the annual increase in the cost of living. Costs of burial plots, cemetery monuments, funeral director's fee and attorney fees have risen. Thus, if an individual’s estate presently lacks liquidity, it can be assumed that the liquidity problem would continue to increase in the future. The need for liquidity arises because of four general grouping of expenses materialize upon death. These expenses generally must be paid within one year of death. Administration expenses are the expenses of opening, administering and closing the decedent's estate. Executor's fees and fees for the Executor's attorney represent the majority of expenses. Other expenses will include Court costs, costs of appraising estate property, costs of insuring estate property while estate is opened, maintenance or repair of estate property, expenses of defending a Will contested by disgruntled heirs, auction fees, and the cost of administration. Studies of I.R.S. statistics reveal that these expenses will shrink the estate by four to five percent. Indebtedness of the decedent, like mortgages is usually the most significant debts. Many families will want to retire the mortgage at the death of the first spouse so that the surviving widower and children are not burdened with this debt. Other debts would include automobile loan balances, credit card accounts and other installment credit, and final expenses of the decedent's last illness. Accrued taxes would also be considered debt. This would include accrued but unpaid income taxes (federal, state, local), property taxes and any other taxes which the decedent had incurred but not paid. It should be noted creditors have a limited period of time in which to file claims against the estate. The Executor then has a period of time, usually the first six months after death, in which to decide the validity of such claims and settle or pay them. Debts will vary according to the estate but they generally average five to six percent of the total estate. Funeral expenses and related costs are a major cause of shrinkage. Expenses paid to funeral homes, burial expenses, tombstone, monument or mausoleum expresses, the cost of a burial plot, the cost of transportation of the body, florist's fees and prepaid expenses for future care of the burial site are all included. Death taxes, federal...