Friday, November 16, 2012
Myths and Realities of California Estate Planning
This blog post here is written for you to review some of the myths and realities of estate planning in California. There have been many articles written about this, but let's see if we can't put a different spin on it by keeping things simple. By dispelling some of the common misconceptions, we will have a better understanding of how important it is to take positive action to keep our estate plans in order.
Tax laws are not easy to understand, but let’s take a look at some myths and explain them as clearly as possible.
Myth. Estate tax reform, or repeal, would signal the end of charitable giving.
The IRS also gives you income tax breaks for any charitable donations you give. Some people use charitable giving strategies as a strategy to reduce or freeze the value of their estates. Many have bemoaned the possibility of estate tax repeal or reform, because they strongly feel that it will reduce the amount of charitable giving currently done. The argument is that if fewer estates are subjected to the estate tax, then fewer people will be inclined to make charitable gifts as an estate tax reduction strategy.
One thing to look at is the numbers, as they never lie. Since 2001, the estate tax exemption amount (the amount of property each person can pass free from federal estate taxes) has more than doubled. The myth says, the increasing estate tax exemption amount means that less individuals will be inclined to give to charity. The truth is that during the same time period, charitable giving nationwide rose by nearly $90 billion! The myth was clearly incorrect in this case.
Charitable giving is more than a tax reduction strategy to many. A lot of people feel very passionate about the charities they support and the aide that they provide. While it is great to get a tax break, the emotional gift giving brings has no price at all.
Myth. Due to tax law uncertainty, you should not utilize life insurance trusts.
The irrevocable life insurance trust (ILIT) is most likely the most significant insurance related estate planning tool available to you. The irrevocable nature of the trust can give you estate tax savings while at the same time the insurance gives you a cost effective way to pay your estate taxes (depending on age and health). One thing that makes the irrevocable life insurance trust attractive is that the death proceeds of the policy are not included in the insured's estate. If this is kept out of the decedent's estate, the death proceeds will not increase the estate tax burden needed to be paid.
To be certain that the life insurance proceeds are excluded from the insured's estate, there are 2 requirements; one is that the insured must not have any incidents of ownership in the policy and the trust must be irrevocable.
Myth. Revocable Living Trusts reduce taxes.
Revocable living trusts are a separate legal entity that you can create when you own property, like a home, other real estate, or investments. You can transfer some or all of your property to the living trust. Over the course of your life , the trust is controlled by you. Upon your death, the trust becomes irrevocable and may continue to exist for many years. People create living trusts because of the control they are able to retain over their assets while achieving other goals, like controlling the manner and timing of asset distributions to heirs, being able to provide asset management during times of incapacity, avoiding probate and/or serving as a will substitute (among other things). There is a myth going around that revocable trusts save taxes.
As you can see, revocable trusts have many benefits, but tax savings is not one.
Myth. Estate planning is dead.
This is a huge misconception and the greatest myth of all, and I am not just saying that because I am an estate planning attorney in Orange County.
There are many reasons to put your estate plan in order including:
· Asset protection
· Family business planning
· Multi-generational planning
· Income replacement
· Equalization of inheritance
· Special needs dependents
· Charitable giving
Life insurance is often a crucial component of many, if not all, of these estate planning goals.
If you have not put your estate plan together, to avoid probate and receive the benefits listed above hire an estate planning attorney to help you do it right.
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I help people protect their families through affordable, personalized estate planning. Tompkins-Law.com I am in solo practice in Orange County, California where I focus on estate planning, family trusts, living trusts, wills, corporations and business succession planning. I speak Spanish and serve the latino community. Fideicomisos-Testamentos.com