A basic estate plan is a set of documents that includes a Will, possibly a Revocable Living Trust, and supporting documents such as a Durable Power of Attorney, Advance Directive, and HIPAA Release. These legal tools help individuals, couples, and families plan for and deal with illness, incapacity, and death. These tools also play an important role in reducing income and estate taxes, providing for the smooth transition of a business, and supporting minor children.
Some individuals may want legal guidance with additional matters beyond the scope of the basic legal tools mentioned above. Below are some examples:
Your individual retirement plan is shielded from your own creditors and bankruptcy, but the same protection is not provided to anyone who inherits the remainder of your retirement plan assets after your death. Also, those who inherit retirement plans are more likely to choose a lump-sum payout rather than a long-term payout, or rollover. This results in harmful negative income tax implications for your beneficiaries. Many people cringe at the thought of their hard-earned retirement account being spent in a year or two by their children. A retirement plan trust helps resolve these issues and provides important protection for your beneficiaries.
A charitable remainder trust is a trust that provides the trustmakers or grantors income for a number of years, after which a charity (or charities) of your choice receives the remaining trust assets. The benefits to you include a reliable steady stream of income for a number of years, a partial charitable income tax deduction, and possible capital gains tax relief.
A charitable lead trust is a trust you set up to provide income to a charity for a term. The longer the time period, the better the gift tax savings will be to you as the creator of the trust. After the term ends, the remaining property in the trust is distributed to the beneficiaries you designated, such as yourself, family, or others.
In general, your life insurance policy is included in your taxable estate at your death. If you wish to reduce estate taxes at your death, you may want to remove the insurance policy from your estate with an irrevocable life insurance trust. Additionally, you may be concerned that the beneficiaries of your insurance policy will not spend the proceeds appropriately upon your death. By designating a trust as the beneficiary of your policy and providing guidance to the trustee on how to invest or distribute those proceeds, you can simultaneously reduce taxes and have more control over the proceeds of your policy.
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