Estate and Gift Tax Planning
A little planning can save thousands of dollars!
Most people don't like to think about death, much less plan for it. And since there is no legal requirement to do estate planning, many of us put it off. Yet the truth is that investing a little time in estate planning can pay off in lower taxes and administrative costs, increased financial security for your loved ones, and best of all, your own peace of mind.
Estate planning is not just a task for the wealthy. Tax implications kick in depending on the value of your estate and the federal and state laws in effect at the time of your death.
The value of your home, your personal property, your business interests, your collectibles, your investments, including your retirement accounts, and possibly your life insurance can all enter into the estate equation.
Use our estate planning calculator to help you determine what your estate is worth.
Basic estate planning documents allow you to control the fundamental financial and personal decisions of your life and death. Here's a list of the essential documents that even the simplest estate plan should include.
- The will. Where there's a will, there's a way — a way to honor your wishes. How, when, and to whom will your property go? Who will be the guardians of your minor children? Without a will, these decisions will be made by strangers in a court system using rules that could be contrary to your intentions. Keep in mind that a will controls only the distribution of your probate estate. It does not control assets held in trust, certain joint assets, retirement accounts, or life insurance policies on which you name beneficiaries.
- Information memo. Keep a list of your insurance policies, bank accounts, investment and retirement accounts, businesses you own, outstanding debt, credit cards, tax-related documents, income sources, and other financial information. In addition, include the names and phone numbers of your accountant, lawyer, doctor, and insurance agent.
- Durable power of attorney. This critical document enables someone you choose to conduct your financial affairs if you become incapacitated.
- Directive to physicians. A directive to physicians (also called a living will, health care directive, or some similar name) documents the medical treatment you wish if you become incapacitated. It lets you name the individual(s) you wish to make your medical decisions if circumstances keep you from making them yourself.
- Funeral instructions. Include your burial wishes and a list of relatives, friends, and business associates to be notified upon your death.
Keep your original documents in a fireproof safe or with your attorney. Put your list of documents and the copies in a binder at home, and tell your personal representative (executor) where the binder is located.
Keep your plan current
Estate planning is an ongoing project. Review your plan and documents on a regular basis to ensure that they are up to date for current tax law and your personal situation.
Some gift tax planning possibilities:
- Annual gifts
Current tax law allows you to give away a certain amount each year to as many recipients as you choose with no gift tax consequences. Your spouse may join in this annual gifting even if he or she is not an owner in the transferred asset. This means that you could transfer double the exempt amount each year to each of your heirs. To double the annual exclusion yet again, you may want to include spouses of your children. The person receiving the gift does not need to be related to you. These annual gifts do not reduce your estate tax exclusion.
- Unlimited gifts
You can make unlimited gifts to pay for another individual's medical expenses or school tuition as long as your payments are made directly to the institution.
- Property transfer
If you have property which is not needed for your retirement, maybe it is a candidate for transferring during your lifetime. If it is a large income-producer, the future income will be taxed to the new owner and not to you, plus the property will be out of your estate.
- Spousal transfer
You can make unlimited transfers to your spouse either during your lifetime or through your estate. There are no taxes on spousal transfers, regardless of size.
- Life insurance proceeds
With proper planning, certain life insurance proceeds can be kept out of your estate.
If you'd like details about estate planning or assistance in developing or reviewing your estate plan, please contact our office. We're here to help.
1922 The Alameda, Suite 318
San Jose, California 95126
Fax: (408) 445-1709
- American Institute of CPAs
- California Society of CPAs
- National Association of CVAs
- National Association of Enrolled Agents
- National Society of Accountants Inc.
- Accreditation Council for Accountancy and Taxation Inc.
- International Association of Financial Planning
- National Association of Tax Professionals