Wills: Distributing Assets to Beneficiaries
Wills are simply plans for distributing assets to family members and other beneficiaries. If you die without a will, your state law will determine how your assets will be distributed.
Beneficiary Designations
Annuities, life insurance, IRAs and retirement plans are just some of the assets that let you designate beneficiaries. The assets are automatically distributed to that beneficiary upon your death, which means they generally avoid the probate process.
Gifting to Individuals & Trusts
In its simplest form, gifting represents an opportunity to transfer assets to children or other beneficiaries during your lifetime and reduce your taxable estate. Sophisticated gifting techniques can also help you: Provide income for yourself or your heirs,Leverage your annual exclusion gifts,Pay for a child's education.
Annual gifting. You may gift up to $13,000 per person per year tax free ($26,000 per recipient for married couples who combine gifts). This amount is called the annual exclusion. Any gift over that amount requires you to file a gift tax return. Medical and education expenses. If you pay someone's medical or education expenses directly to the provider, the gift is not included in your annual exclusion amount. For example, if you pay $25,000 for your grandchild's tuition directly to the school in 2011, you can still gift up to $13,000 tax free to him or her this year ($26,000 for a combined gift from you and your spouse).Gifting to 529 college savings plans. If you're helping your child or grandchild save for college using a 529 college savings plan, you can gift up to the annual exclusion per year tax free or you can make up to five years' worth of annual exclusion gifts ($65,000 per single donor; $130,000 per couple) in one year to benefit any one person.
Many types of trusts can help you accomplish your estate planning goals, below are three common types of trusts designed to help you transfer your wealth efficiently while avoiding probate and reducing estate taxes:
Life insurance trusts. An irrevocable life insurance trust lets you keep the death benefit of your life insurance policy outside of your estate (and out of probate), which means your life insurance proceeds will not increase your estate tax liability. In fact, you can design your life insurance trust so that it will be applied toward your estate tax liability, leaving more of your actual wealth for your heirs.Irrevocable gift trusts. You can give beneficiaries access to gifted funds according to the standards you set, until the beneficiary reaches an age that you select; these trusts can even continue for multiple generations.
Revocable living trusts. Although revocable living trusts are still part of your taxable estate, they do help you efficiently transfer wealth to your heirs and help them avoid the probate process.
