A-Z Estate Planning

J-"J" stands for Joint Ownership. A married couple who lives in a community property state will enjoy a step up in basis for a home they own jointly. For example, if a couple pays $100,000 for a home, and when the first spouse dies, it is worth $200,000, the living spouse's new basis in the home is now $200,000.  If she later sells it, and for some reason tax is owed, her taxable gain would be calculated using the $200,000 stepped-upped basis, thus saving money.  If however, a home is owned jointly by two people not married, the survivor could inherit the property under Nevada law without passing through the probate process: however, the survivor's basis would remain the original $100,000 from the earlier example; there would be no step-up in basis. This unfortunate outcome could be avoided with planning.

K – “K” stands for 401(k).  The term “401(k)” is a general term many people use to refer to their widely known by many people as the retirement program they have at their workplace.  The term itself is actually a section of the Internal Revenue Code that regulates employer-sponsored retirement plans that can qualify for special tax treatment if conducted according to the IRS Code and Regulations.  Your 401(k) retirement plan can play a very important role in your estate plan, but if handled improperly can have negative tax consequences for your beneficiaries.   For example, it is generally not a good idea to name your trust as a beneficiary of your 401(k) plan, but rather, simply name direct beneficiaries of your plan, and allow your trust to operate separately and control its assets separately.

L – “L” stands for LIMITED LIABILITY COMPANY (LLC).  Many individuals pass away as owners of an interest in Limited Liability Companies.  Depending on the operating agreement of the LLC, some or all of your interest in the LLC can be funded into your trust during your life.  There are certain procedures both at the LLC level and, perhaps, at the state level that will need to be followed to ensure this is done properly and with the greatest effect.

A-Z Estate Planning

G-"G" stands for GENERATION SKIPPING TAX. When a person dies and transfers their assets to their heirs (traditionally, their children ) the government imposes a tax on that transfer, something usually called an estate tax.  Those children would then later transfer some or all of those assets to their children. When this occurred, there would be another transfer/estate tax imposed on the same asset, effectively, the same asset was taxed twice.  In an attempt to avoid this double tax, some individuals simply skipped the first transfer to their children and left some assets to their grandchildren instead, effectively "skipping a generation" and a level of tax.  The government caught on and imposed a tax on transfers that skip generations.

H-"H" stands for HEIR. When someone dies the person who is legally entitled to that individual's assets and property is the HEIR.

I-"I" stands for IRREVOCABLE, IRS,IRAs, and ILITs. An IRREVOCABLE trust is a special kind of trust that has serious implications, and should not be undertaken without seeking advice from an attorney and a tax advisor.  These kinds of trusts have their uses, but fit only a small fraction of the public.  The IRS governs the tax effects of the choices made in and through your estate.  Poor planning can result in wild swings in tax exposure (greater or lesser) of your estate.  Many, many people have IRAs. An Irrevocable Life Insurance Trusts, better known as an ILIT is a tool to pay off estate taxes by purchasing life insurance in the amount of the taxes estimated to be owing at the time of death.  In this way, the beneficiaries inherit most, if not all, the estate without having to pay tax from it.

To Be Continued......

A-Z Estate Planning

D- "D" stands for DIVORCE, which can play an important role in estate planning, especially if there are stepchildren.  See, Q tip in coming posts.

E-"E" stands for ESTATE and EIN.  The value of the assets in your ESTATE when you pass away will determine how much your ESTATE will owe in taxes. Removing assets from your ESTATE before you die can help eliminate taxes.  Your living trust/your ESTATE will not generally need an " EMPLOYER Identification Number (EIN) until you pass away.

F-" F" stands for FUNDING your trust. If your attorney or financial advisor determines that you should have a trust, it is vital to the existence of the trust that it has assets transferred (FUNDED) into it.  A trust without assets has no legal effect, and your assets will be forced to pass through the public PROBATE process.

To Be Continued.................