Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 8, 1994 TAG: 9408150007
SECTION: BUSINESS PAGE: A6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
As a result of their equivocation, heirs can be embroiled in a time-consuming and expensive legal process, and the estate is often subject to unnecessary taxes.
To avoid this situation for the family and to ensure that an estate is distributed according to your wishes, the Virginia Society of Certified Public Accountants offers some guidance.
The most important step, the accountants said, is to write a will.
A will is the basic element of any estate plan. The document specifies how and when your assets should be distributed and names an executor who is responsible for managing your estate.
Your last testament also should name legal guardians for children, in the event that both you and your spouse die in a single disaster.
If you die without a will, the court names an administrator to distribute your assets. This might even be a court administrator, but whomever it might be probably will be paid from your estate.
The court also selects a guardian for your children and, if family members fight over custody, your estate pays for the legal battle - depriving your children of yet more of the hard-earned assets you may have intended to leave them for other purposes.
Finally, the absence of a will allows state law to allocate your property among your heirs. But how your assets are split may not be in your family's best interest. The state, for example, may split the money between your spouse and your children. Even if your spouse needs the children's portion of the money to meet household expenses, he or she might not be able to obtain it.
With a will, you also can free your executor from the need to post an expensive bond when, presumably, this is a person you can trust to deal honestly with your heirs. If you don't have a will, your estate must pay to bond the administrator.
Another aspect of planning is to take advantage of estate tax exemptions.
Through proper planning, you can ensure that your estate is structured in a way that enables you to take advantage of available exemptions. For estates under $10 million, the first $600,000 of assets is exempt from federal estate and gift taxes.
An unlimited marital deduction enables a married person to transfer an unlimited amount of property, free of tax, to the surviving spouse.
When the surviving spouse dies, however, only $600,000 of the assets in the estate will be shielded from estate taxes. Amounts over $600,000 are taxed at rates ranging from 37 to 55 percent.
The accountants warned against assuming an estate is too small to be concerned about taxes and estate planning. It may be larger than you realize.
That's because an estate includes your home and other real estate; stocks, bonds and other investments; interest in a closely held business; as well as your car, jewelry, antiques and other valuables. It also includes benefits from profit-sharing plans and the face value of your life insurance policies.
Even if your estate is currently worth less than $600,000, it may increase substantially simply because the value of your assets generally rises.
Couples with assets over the brink could minimize estate taxes by dividing their assets so each spouse separately owns no more than $600,000 in assets. If one spouse dies, these assets could bypass the other spouse and go directly to other heirs.
In this way, the surviving spouse's estate would not exceed $600,000 and heirs would benefit from the doubling of the exemption amounts.
If you anticipate having more than $600,000 in assets, you can take other steps to reduce your taxable estate and pass on more of your wealth to your heirs.
Establish a by-pass trust.
This type of trust provides a mechanism for you to pass assets directly to your heirs without the assets being included in the taxable estate of your spouse.
A typical by-pass trust would enable the widow or widower to receive income from the trust. At his or her death, the principal would pass to the children.
Make gifts. You can give any number of people gifts of up to $10,000 a year (or up to $20,000 a year if you make a joint gift with your spouse) without paying tax on your gifts.
Consider an irrevocable life insurance trust.
You can give your life insurance policy, and all control over it, to a trust and pay the premiums with "gifts" to the trust.
On your death, the proceeds of the policy are paid to the trust and are not included in your estate. Your family can draw on the trust's income for life, and your beneficiaries can eventually obtain the remainder.
People interested in estate planning should see a certified public accountant or a lawyer who specializes in estate and tax work.
by CNB