By Andrew J. Goldberg
Do you plan to transfer money to your children, grandchildren, or other relatives and friends during your lifetime or after you die? If so, are you comfortable with letting the government handle these financial and family decisions for you? Based on the government’s recent decision-making difficulties, probably not.
As this edition of the Commentator goes to press there is still uncertainty about the estate tax rates for 2011 and beyond. Two important questions still remain: 1) How much money you can transfer in your lifetime or at death without being taxed at an astronomical rate? 2) At what rate will you be taxed if you go over the allowable limit?
It is undecided whether the allowable transfer amount will remain at $3.5 million, revert back to $1 million as it was in 2002, or be set at some other amount. The President and Congress are also in disagreement over the maximum tax rate for transfers over $3.5 million (proposals range from 45% – 55%). There are many reasons people prepare wills, trusts and powers of attorney — minimizing taxes is just one of them. Here are some other critical reasons:
- Avoiding probate: Properly titling assets and naming beneficiaries on IRAs, 401Ks, and life insurance policies prevents your personal information from becoming public. Without proper titling, anybody can have access to this information, and the courts can interfere in the administration and distribution of your assets.
- Distributing assets to children: Determining when, and in what increments, your assets will be distributed to heirs will ensure that children receive inheritance at the age you choose and in the increments you choose. Many people do not want minors or young adults to receive a lump-sum of money before they are prepared to handle it. Strategies to implement staggered distributions are critical.
- Special family circumstances: If you are in a second marriage, or care for an elderly parent, you will need special provisions in your plan. Parents with special needs children or grandchildren, need to make sure their estate plan is properly drafted so their children do not lose government benefits if they inherit money. If you are a business owner and some of your children are involved in the business and others are not, you will need to consider this in your planning.
- Guardianship: If you have young children, you will want to make sure you name guardians for them in case you prematurely pass away. Nobody wants the court to determine who will care for your kids.
- Mental Incapacity: Most people think of estate planning as applying solely to what happens after they pass away. It is equally applicable in determining what happens if you become mentally incapacitated. Without a General Durable Power of Attorney and a Medical Power of Attorney, a court will determine who handles your finances, who makes decisions regarding your health care and even what your care might be.
No person likes to think about his or her mortality, or becoming incompetent. This is why so many families are caught off-guard and unprepared when disability or death strikes. Having a complete and comprehensive estate plan is one of the most thoughtful and considerate gifts you can give to your loved ones.
For further information regarding these matters, please contact Mr. Goldberg at 248.740.5664 or click here to send an email.
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