Estate Planning

Estate planning is a confusing yet critical element in the financial planning process. Your Wealth Alliance Advisor in partnership with an estate planning attorney, can help you navigate questions such as “Do I need a Trust? What is a will? Who should I name as the Executor of my Estate? And many more.

A BRIEF HISTORY OF ESTATE TAXES

Tip: Regardless of your net worth, it’s critical to understand your choices when developing an estate strategy.

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

In 1797, Congress instituted a system of federal stamps that were required on all wills offered for probate when property (land, homes) was transferred from one generation to the next. The revenue from these stamps was used to build the navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was repealed.¹

Estate taxes returned in the build up to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress amended the Revenue Act, added a tax on transfers of real estate, and increased the rates for inheritance taxes. As before, once the war ended the Act was repealed.²

Fast Fact: Estate Income. Between 2016 and 2025, the estate tax will generate about $246 billion.
Center on Budget and Policy Priorities, 2015

In 1898, a federal legacy tax was proposed to raise revenue for the Spanish-American War. This served as a precursor to modern estate taxes. It instituted tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.³

Until 1916. The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then.

In 2010, the estate tax expired — briefly. But in December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010.

In 2012, the American Tax Relief Act made the estate tax a permanent part of the tax code. Still, it’s possible the estate tax law may be adjusted at least once during the next few years. If you’re uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.

Estate Taxes and Overall Federal Revenues

Estate taxes typically account for less than one percent of total federal revenue.

Estate Taxes and Overall Federal Revenues

Chart Source: Center on Budget and Policy Priorities, 2015

Exemption through the Years

Federal estate taxes exempt a share of estates from federal estate taxes. Currently, if an estate’s worth less than $5 million, no federal estate taxes may apply.

YearExclusion AmountHighest Tax Rate
1916$50,00010.0%
1917$50,00025.0%
1918-1923$50,00025.0%
1924-1925$50,00040.0%
1926-1931$100,00020.0%
1932-1933$50,00045.0%
1934$50,00060.0%
1935-1939$40,00070.0%
1940$40,00070.0%
1941$40,00077.0%
1942-1976$60,00077.0%
1977$120,00070.0%
1978$134,00070.0%
1979$147,00070.0%
1980$161,00070.0%
1981$175,00070.0%
1982$225,00065.0%
1983$275,00060.0%
1984$325,00055.0%
1985$400,00055.0%
1986$500,00055.0%
1987-1997$600,00055.0%
1998$625,00055.0%
1999$650,00055.0%
2000-2001$675,00055.0%
2002$1,000,00050.0%
2003$1,000,00049.0%
2004$1,500,00048.0%
2005$1,500,00047.0%
2006$2,000,00046.0%
2007$2,000,00045.0%
2008$2,000,00045.0%
2009$3,500,00045.0%
2010$0 or $5,000,0000% or 35%
2011$5,000,00035.0%
2012$5,120,00035.0%
2013$5,250,00040.0%
2014$5,340,00040.0%
2015$5,430,00040.0%
2016$5,450,00040.0%

Chart Source: Internal Revenue Service, 2016

1,2,3. Internal Revenue Service, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

ESTATE MANAGEMENT 101

A will may be only one of the documents you need—and one factor to consider—when it comes to managing your estate

ESTATE MANAGEMENT CHECKLIST

Tip: One key difference between a will and a living trust is when they take effect. A will takes effect when you die; a living trust takes effect when you execute it, and begins to operate when you transfer assets to it.

Do you have a will?

A will enables you to specify who you want to inherit your property and other assets. A will also enables you to name a guardian for your minor children.

Do you have healthcare documents in place?

Healthcare documents spell out your wishes for health care if you become unable to make medical decisions for yourself. They also authorize a person to make decisions on your behalf if that should prove necessary. These documents may include a living will, a power of attorney agreement, and a durable power of attorney agreement for healthcare.

Do you have financial documents in place?

Certain financial documents can outline your financial wishes. If you become unable to make decisions for yourself, these financial documents can be structured to empower a person to make decisions on your behalf. These documents may include joint ownership, durable power of attorney, and living trusts.

Checkboxes

Have you filed beneficiary forms?

In some cases, naming a beneficiary for bank accounts and retirement plans makes these accounts “payable on death” to your beneficiaries. In other cases, you will need to fill out a “Payable on Death” form.

Do you have the right amount and type of life insurance?

When was the last time you assessed your life insurance coverage? Have you compared the life insurance benefit with your financial obligations?

Have you taken steps to manage your federal estate tax?

If you and your spouse have more than $5.49 million in assets (for 2017), you may want to consider taking steps to manage federal estate tax, which will be due at the second spouse’s death.

Fast Fact: Although estate taxes could claim a sizable portion of your legacy, they make up less than one percent of total federal revenue.
Source: Center on Budget and Policy Priorities, 2016

Have you taken steps to protect your business?

Do you have a succession plan? If you own a business with others, you may also want to consider a buyout agreement.

Have you created a letter of instruction?

A letter of instruction is a non-legal document that outlines your wishes. A strong, well-written letter may save your heirs time, effort, and expense as they administer your estate.

Will your heirs be able to locate your critical documents?

Your heirs will need access to the specific documents you have created to manage your estate. These documents may include:

  • Your will
  • Trust documents
  • Life insurance policies
  • Deeds to any real estate, and certificates for stocks, bonds, annuities
  • Information on your bank accounts, mutual funds, and safe deposit boxes
  • Information on your retirement plans, 401(k) accounts, or IRAs
  • Information on any debts you have: credit cards, mortgages and loans, utilities, and unpaid taxes

Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

CRITICAL ESTATE DOCUMENTS

Financial Documents

 Joint OwnershipDurable Power of AttorneyLiving Trust
What does it do?Enables you to own property jointly with another personAuthorizes someone to handle legal and financial decisions if you become incapacitatedHolds your belongings until your death
Can it authorize someone to handle your financial affairs if you are unable to communicate?Generally, nocheckGenerally, no
Can it specify how you want your belongings transferred after your death?check
But only those belongings owned jointly
Generally, nocheck
Is it private?checkcheckcheck
When does it go into effect?As soon as joint ownership is recordedEither immediately or upon a specific trigger event (such as your incapacity)When the document is signed and the trust is funded
Does it require court involvement?NoNoNo

Fast Fact: Without a Will. About 66% of Americans admit they don’t have a will.
Source: Everplans, September 16, 2015

Healthcare Documents

 Living WillPower of AttorneyPower of Attorney for Healthcare
What does it do?Provides specific instructions about medical care and artificial life supportAuthorizes someone to handle legal and financial decisions on your behalfAuthorizes someone to make healthcare decisions on your behalf
Can it outline your medical wishes if you are unable to communicate?checkGenerally, noNot generally, but it does authorize someone to make medical decisions on your behalf
Can it authorize someone to handle your financial affairs if you are unable to communicate?Generally, nocheckGenerally, no
DurationNo expiration; can be revised or revoked at any timeDepends on specifics in the document; can be revised or revoked at any timeDepends on specifics in the document; can be revoked or revised at any time
Is it private?checkcheckcheck
When does it go into effect?Upon your incapacityEither immediately or upon a specific trigger event (such as your incapacity)Either immediately or upon a specific trigger event (such as your incapacity)

Tip: Delegation. When choosing someone to make healthcare decisions on your behalf, consider naming an individual who is trustworthy, level-headed in a crisis, and can make themselves available on short notice.

Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

A LIVING TRUST PRIMER

A living trust is a popular consideration in many estate strategy conversations, but its appropriateness will depend upon your individual needs and objectives.

What is a living trust?

A living trust is created while you are alive and funded with the assets you choose to transfer into it. The trustee (typically you) has full power to manage these assets.1

A living trust will also designate a beneficiary, or beneficiaries, much like a will, to whom the assets are structured to automatically pass upon your death.

If you create a revocable living trust, you may change the terms of the trust, the trustee, and the beneficiaries at any time. You can also terminate the trust altogether.

Why create a living trust?

The living trust offers a number of potential benefits, including:

  • Avoid Probate—Assets are designed to transfer outside the probate process, providing a seamless and private transfer of assets.
  • Manage Your Affairs—A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided you have adequately funded it and named a trustworthy trustee or alternative trustee.
  • Ease and Simplicity—It is a simple matter for a qualified lawyer to create a living trust tailored to your specific objectives. Should circumstances change, it is also a straightforward task to change the trust’s provisions.
  • Avoid Will Contests—Assets passing via a living trust may be less susceptible to the sort of challenge you might see with a will transfer.

The drawbacks of a living trust

Living trusts are not an estate panacea. They won’t accomplish some potentially important objectives, including:

  • A living trust is not designed to protect assets from creditors. It is also considered a “countable resource” when determining your Medicaid eligibility.2
  • There is a cost associated with setting up a revocable living trust.
  • Not all assets are easily transferred to a living trust. For example, if you transfer ownership of a car, you may have difficulty obtaining insurance, since you are no longer the owner.
  • A living trust is not a mechanism to save on taxes, now or at your death.2
  1. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
  2. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

WHEN DO YOU NEED A WILL?

When do you need a will? The answer is easy: Right Now.

AND THE EXECUTOR IS

Tip: Generally,
children under the age of 18 cannot be executors.
Source: Plea.org, May 20, 2016

In her will, American businesswoman Leona Helmsley left $12 million in a trust fund to her dog Trouble. Her four executors were responsible for seeing that her wishes were carried out. In the years after her death, they dealt with challenges from two disinherited grandchildren, oversaw scores of properties and hotels, negotiated settlements with disgruntled former employees, and managed a huge investment portfolio in a falling economy. What did they ask for in return? $100 million split between them.¹

The executor to your will may not be as busy or as well compensated as Ms. Helmsley’s. Still, you’ll want to give thoughtful consideration to this important choice. How do you choose an executor? Can anyone do it? What makes an individual a good choice?

Many people choose a spouse, sibling, child, or close friend as executor. In most cases, the job is fairly straightforward. Still, you might give special consideration to someone who is well organized and capable of handling financial matters. Someone who is respected by your heirs and a good communicator also may help make the process run smoothly.

Above all, an executor should be someone trustworthy, since this person will have legal responsibility to manage your money, pay your debts (including taxes), and distribute your assets to your beneficiaries as stated in your will.

If your estate is large or you anticipate a significant amount of court time for your executor, you might think of naming a bank, lawyer, or financial professional. These individuals will typically charge a fee, which would be paid by the estate. In some families, singling out one child or sibling as executor could be construed as favoritism, so naming an outside party may be a good alternative.

Fast Fact:
Michael Jackson chose executors from outside his family to manage his estate.
Source: Billboard.com, March 15, 2016

Whenever possible, choose an executor who lives near you. Court appearances, property issues, even checking mail can be simplified by proximity. Also, some states place additional restrictions on executors who live out of state, so check the laws where you live.

Whomever you choose, discuss your decision with that person. Make sure the individual understands and accepts the obligation—and knows where you keep important records. Because the person may pre-decease you—or have a change of heart about executing your wishes—it’s always a good idea to name one or two alternative executors.

The period following the death of a loved one is a stressful time, and can be confusing for family members. Choosing the right executor can help ensure that the distribution of your assets may be done efficiently and with as little upheaval as possible.

What Will?

Take a look at some famous people who left life without having a will in place.

Healthy Body, Healthy Pocketbook
  1. Prince
  2. Jimi Hendrix
  3. Bob Marley
  4. Sonny Bono
  5. Pablo Picasso
  6. Howard Hughes
  7. Steve McNair
  8. Abraham Lincoln

Source: Forbes, April 27, 2016

1.  January 24, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.