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Estate Planning is the legal method for an individual to pass his or her estate on to preferred beneficiaries after death. Estate planning also ensures one's assets will not be heavily diminished through taxes. The U.S. government imposes liability of a Federal Estate Tax (sometimes referred to as “death taxes”) and a Federal Gift Tax (sometimes referred to as “inheritance taxes”) on transfers of a deceased person's property.
Estate Planning Components
Basically, estate planning is comprised of retirement planning and asset protection, final disposition of a body, final disposition of liabilities (such as taxes) and final disposition of property. Legal forms may be purchased for those who prefer a do-it-yourself route to estate planning, but most soon realize the complexities of estate planning laws are best handled by attorneys with expertise in this area.
Disposition of Property
The most frequent documents and contracts used in estate planning are wills and trusts. Without a valid will, property (and liabilities) will be allocated first to a surviving spouse, then child(ren), then to parent(s) and, finally, to next of kin.
There are two kinds of trusts. A “Living Trust” accomplishes transfer of a decedent's property and assets to heirs in a manner that avoids probate. A different type of trust can be established to make provision for safeguarding portions of the assets on behalf of an heir who is a minor at the time of the decedent's passing or to establish an ongoing fund for a charitable project.
An important estate planning tool to consider is a Generation-Skipping Tax strategy. This is a provision for lifetime gift-giving to one's children, making good use of an individual's $10,000 annual exclusion from Gift Tax.
Disposition of the Deceased
A popular trend when planning for a death is to sign a “Living Will.” This has nothing to do with disposition of property and assets; rather, it is a document that expresses a terminally ill person's desire to refuse medical treatment (and release healthcare providers from liability).
Estate planning should also include arrangements for funeral (if desired) and what to do with the deceased's remains. Final disposition details should not be included in a will, since it may not be found until it is too late. Making these decisions ahead of time saves difficult, emotional discussions among the loves ones later. The document should list (a) the name of the funeral home you want to handle your body (along with how your remains will be transported, and the type of casket you prefer), (b) whether you prefer that your entire body be donated to medical science and research institutions, (c) whether you prefer cremation (and where your remains should be scattered or buried), (d) details of your funeral ceremony (if a funeral is desired). Many cemeteries and funeral homes provide options for pre-paying the cost of these needs years in advance, thus saving money at the time of death.