Through estate planning, your assets can be transferred to your chosen beneficiaries while minimizing tax consequences.
Taking Stock of Your Possessions
The first step in estate planning is to inventory everything you own, including assets jointly owned, and assign a value to each asset. Once you've estimated the value of your assets, you can start planning.
Making a Will
If you die without a will, the court steps in and distributes your property according to the laws of your state, which may not coincide with your wishes. If you have no heirs and die without a will, it's possible the state will claim your estate.
Each state has specific requirements, but in general, a will can be written by any person over the age of 18 who is mentally capable. Although you can do it yourself, it is recommended that you consult an attorney for help.
- Naming an Executor
The person who carries out or executes the instructions in a will is called an executor or personal administrator. Most people choose their spouse, an adult child, a relative, a friend or a trust company or attorney to fulfill this duty. Choose someone who can handle all of the financial matters involved with settling your estate.
Revocable Living Trust
This is an alternative that can be used to distribute assets after one's death. Unlike a will, it comes into effect while you are still alive and may be funded with assets during your lifetime. These trusts can maintain privacy, reduce expenses and streamline the administration of assets.
Put It in Writing
Your attorney will need a list of family members and other beneficiaries mentioned in your will or living trust, an estimate of your debts and an outline of your objectives. Items not specifically mentioned need to be addressed in a catchall clause called a residuary clause. Without this, items not specifically mentioned will likely be distributed in accordance with state law.
Federal estate tax law permits each taxpayer to transfer a certain amount of assets at death, free from federal estate taxes. A federal estate tax will be assessed against estates in excess of $5,340,000 for deaths occurring in 2014, indexed annually for inflation. This threshold is known as the basic exclusion amount. This amount may be increased by an individual's deceased spouse's unused exclusion amount (if any) if the spouse's death occurred before the individual's death and after December 31, 2010.
- Gift Taxes
Federal gift tax law permits taxpayers to transfer certain amounts of assets without paying a gift tax during their lifetime. An individual's federal gift tax exclusion amount may be increased by his or her deceased spouse's unused exclusion amount (if any) if the spouse's death occurred after December 31, 2010.
Minimizing Estate Taxes
With the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, as amended by American Taxpayer Relief Act of 2012, a deceased spouse's unused exemptions may be carried over if the deceased spouse died after December 31, 2010. Therefore, if your spouse does not use any or only a portion of their exemption the balance can be added to your $5,340,000 (for deaths occurring in 2014) exemption.
Giving away assets
Subject to certain restrictions, federal tax law allows each individual to give up to $14000 (scheduled to be adjusted periodically for inflation) per year to anyone, without being subject to a gift tax.
Any such gifts must be made to an organization that operates for religious, charitable or educational purposes and is duly qualified with the Internal Revenue Service.
Irrevocable life insurance trusts
These remove life insurance proceeds from your taxable estates and make it easier to convert your estate's assets into cash. Life insurance trusts are funded either by transferring an existing life insurance policy or by having the trust purchase a new policy.
The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance or other financial products and services. Clients should seek advice based on their particular circumstances from an independent tax advisor since any discussion of taxes is for general informational purposes only and does not purport to be complete or cover every situation.
MetLife, its agents, and representatives may not give legal, tax or accounting advice and this document should not be construed as such. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
ERISA and current tax laws are subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary, depending on the particular set of facts and circumstances. You should consult with and rely on your own independent legal, accounting, ERISA and tax advisors.