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GENERAL OVERVIEW
Specific Objectives
Whether you are married or single a well-crafted estate plan is the best "gift" you can leave to your family and loved ones. The true starting point for planning your estate should be to ask yourself "What are my objectives?"
(i) security and privacy of plan for family ?
(ii) control over the estate during lifetime ?
(iii) minimize tax liability and cost of estate administration ?
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FEDERAL GIFT & ESTATE TAX CONSIDERATIONS
$13,000 Annual Gift Exclusion (2012)
Every individual can gift $13,000 annually to any number of donees and not be liable to pay gift tax. Married couples can gift $26,000 per donee if they use "split gift" rules. Annual donor gifts of more than $13,000 per donee will be sheltered from tax due to the donor's lifetime gift tax credit, however the excess will decrease the donor's lifetime gift tax credit. In accordance with the Taxpayer Relief Act of 1997 the $13,000 per donee annual gift exclusion will be indexed for inflation annually and rounded to the next lowest multiple of $1,000.
In addition, a donor may also indirectly gift unlimited amounts of money to a donee by directly paying the donee's medical expenses and/or educational expenses. There will be no impact upon the annual gift exclusion or the lifetime gift tax credit so long as such expenses are paid by the donor directly to the medical provider or educational institution.
$5,120,000 Gift Tax Exemption (2012)
In accordance with the provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 the gift tax exemption will be increased to $5.12 million per individual ($10.24 million for couples) in 2012. A 35 percent tax rate will apply to gifts over the $5.12 million threshold. Any gifts made during life (other than annual exclusion gift amounts) will decrease the estate tax exemption applied upon demise. In addition, the law once again "unifies" the estate and gift tax exemptions at $5.12 million.
$5,120,000 Estate Tax Exemption (2012)
In accordance with the provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 the estate tax exemption will be increased to $5.12 million per individual ($10.24 million for couples) in 2012. In addition, such exemption will be "portable" between spouses (if the first spouse to die does not utilize all of his or her $5.12 million exemption, the estate of the surviving spouse could utilize the balance). A 35 percent tax rate will apply to transfers over the $5.12 million threshold. In 2013 the estate tax will revert to what it was scheduled to be in 2011 (a 55 percent rate and a $1 million exemption) unless Congress makes modifications.
Unlimited Marital Deduction
There is an unlimited marital deduction for property transferred between husband and wife during life or after the first to die. Under federal tax law unlimited amounts and value of property may be transferred and neither spouse will be liable to pay gift or estate tax as a result of such transfer. Upon the death of husband or wife the unlimited marital deduction applies by default to property held jointly between them. In such case the surviving spouse will not be able to apply the current estate tax exemption of such deceased spouse to any portion of such jointly held property.
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MENTAL/PHYSICAL INCAPACITATION
A well-crafted estate plan will address the issue of mental and/or physical incapacitation. Have you planned for your incapacitation? Are you aware of the consequences of becoming incapacitated? Who will manage your affairs during such period?
Guardianship and Conservatorship Proceedings
Without advanced planning your family will be required to petition the Probate Court to have someone appointed as your Guardian and Conservator. These proceedings are costly, time consuming, and require court supervision. Annual accountings are required.
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DURABLE POWER OF ATTORNEY LAW
(Recommended)
You may avoid the court process of Guardianship and Conservatorship by implementing the provisions of the Missouri Durable Power of Attorney Law and the Missouri Durable Power of Attorney for Health Care Act and creating Durable Power of Attorney documents as part of your estate plan. However, you must execute such Durable Power of Attorney documents in advance of your incapacitation.
Durable Power of Attorney for Personal Financial Decisions
A Durable Power of Attorney for Personal Financial Decisions will thoroughly address all matters relating to your personal financial affairs. In such document you appoint a representative known as your Attorney in Fact (as well as two successors) to manage your financial and other general personal affairs.
Durable Power of Attorney for Health Care Decisions
A Durable Power of Attorney for Health Care Decisions will thoroughly address all matters relating to your personal health care affairs. In such document you appoint a representative known as your Attorney in Fact (as well as two successors) to manage your health care affairs.
Living Will/Advanced Health Care Directive
It is recommended you create and execute a Living Will/Advanced Health Care Directive (i.e. your right-to-die statement) declaring your desire to die a natural death without artificial means in the event you have sustained substantial and irreversible loss of mental capacity and are unable to eat or drink without medical assistance, or you have an incurable or irreversible condition in which death will occur within a relatively short period of time regardless of the application of life-prolonging medical procedures. Such document is normally included within the Durable Power of Attorney for Health Care Decisions, as both documents work together in addressing your health care affairs and life and death decisions.
For more information visit our website
Missouri Durable Power of Attorney.com
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THE PROBATE PROCESS
Intestacy
An individual who dies with property titled solely in his or her name without a valid Last Will & Testament in existence is said to have died "intestate." In such case the family or loved ones of such individual will be required to petition the Probate Court to probate the deceased's intestate estate and will be forced to distribute the deceased's property in accordance with the state laws of intestacy, possibly resulting in a distribution scheme not desired by the deceased.
Last Will and Testament
An individual may avoid the intestacy laws and dictate to whom his or her property shall be distributed upon demise by executing a valid Last Will and Testament. An individual who dies with property titled solely in his or her name with a valid Last Will & Testament in existence is said to have died "testate." In such case the Last Will and Testament is submitted to the Probate Court upon demise and probate proceedings are commenced. The probate administration process is set forth in the Missouri Statutes and basically requires the appointment of the named personal representative, the collection of assets, payment of debts and distribution of the property of the estate to the named heirs. A major consideration is whether a Last Will and Testament will effectively achieve any or all of the individual's planning objectives
There are several disadvantages associated with the probate process:
(i) Delay of full distribution of assets to heirs (at least seven months).
(ii) Fees are required to be paid to both the Personal Representative and the Attorney (e.g. a $400,000 estate = $11,550 fee paid to each).
(iii) Additional costs for administration, bond, and publication of notice.
(iv) Public document and multiple state probate proceedings possible.
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JOINT TENANCY
Many individuals seek to avoid the probate process by retitling their property with another individual as joint tenants. There are serious risks associated with joint tenancy owernship:
(i) Upon retitling a completed gift may have been made to the joint tenant, if more than $13,000 in value (the amount excluded from federal gift tax by the annual gift exclusion) the individual's then available lifetime gift tax credit is reduced by the excess amount over the $13,000 gift.
(ii) Loss of full "step-up" in basis of property as the basis "steps-up" only in proportion to decedent's fractional interest.
(iii) Property is subject to claims of creditors of either tenant, except when property is held by husband and wife as joint tenants by the entirety.
(iv) Specific assets can be frozen in event of either tenant's incompetency.
(v) Multiple signatures required for all transactions and routine transfers.
(vi) Possible overfunding of a surviving spouse's estate for estate tax purposes.
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THE MISSOURI NON-PROBATE TRANSFERS LAW
(Recommended)
The Missouri Nonprobate Transfers Law provides an alternative to relying upon a Last Will & Testament, joint tenancy, or a trust to plan your estate. The Missouri Nonprobate Transfers Law allows for you to retitle specific and appropriate assets in a "transfer on death" (TOD) or "payable on death" (POD) form and thereby avoid the probate process.
Advantages of implementing the provisions of the Missouri Nonprobate Transfers Law:
(i) Owner retains legal title and has full control over property during lifetime
(ii) Property is distributed to the named beneficiaries upon the death of the Owner without proceeding through probate.
(iii) Transfer cannot be revoked by the Last Will & Testament or Durable Power of Attorney of the Owner.
(iv) Full "step-up" in basis of property possible and no gift tax implications.
(v) Property is not subject to any creditor claims of the named beneficiaries during the owner's lifetime
For more information visit our website
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THE LIVING TRUST
(Recommended)
A trust is a legal entity which holds title to property for the use and benefit of a person. There are various types of trusts used in estate planning, however the most popular type is the Revocable Living Trust. Such trust is created by a Grantor for his or her benefit during life and upon demise the property held in the trust estate usually benefits other individuals, all as set forth in the provisions of the trust agreement. Such a trust is recommended, but the documentation is complex and the trust plan is more expensive to create and implement. In addition, the costs associated with the administration of the trust after the demise of the Grantor may be expensive.
Revocable Living Trust
This type of trust is amendable and revocable by the Grantor at any time during his or her lifetime. The Grantor funds the trust by retitling his or her appropriate assets into the name of the Trustee. The Grantor may serve as the Trustee of his or her Revocable Living Trust and the property is usually held and administered for the benefit of the Grantor and the named beneficiaries.
Advantages of implementing a Revocable Living Trust as part of your estate plan:
(i) Continuity of management of all assets held in trust, even during incapacitation of Grantor.
(ii) Excellent opportunity to plan to avoid estate tax implications.
(iii) Absolute control of distribution of property to beneficiaries.
(iv) Property held in trust avoids the probate process.
(v) Private estate plan which is not part of the public record.