Written by Christopher G. Schultz, Esq.

In 2011, the Federal Estate Tax returns. This would be a good time for all of us to review our estate plans and review the objectives of our plans. An estate plan is a means of controlling the timing and distribution of our estate, care and custody of minor or disabled children, controlling the costs associated with the administration of an estate and providing for any tax concerns on estates with a value in excess of $1,000,000 in 2011. The basic estate planning tools include a will, a revocable living trust, a general durable power of attorney and a medical patient advocate designation.

For your personal assets, the probate process only addresses the assets in your own name at the time of your death. Assets which are not included in the probate process, because they are not in your personal name at the time of your death, include real estate which is jointly owned with your spouse or with someone else giving them the rights of survivorship, and contracts with beneficiary designations such as life insurance policies, annuities, IRAs, 401(k)s, in trust for accounts and other retirement accounts.

A second benefit is to avoid probate. If your assets are titled in the trust name, those assets are not in your individual name and can avoid the probate process.

A trust offers an additional benefit if you become disabled or incapacitated during your lifetime. If the trust is properly funded, there is no need for a conservator because the assets are titled in the name of the trust and the successor trustee would assume the role of managing the financial affairs of the trust.

A trust can be named as the beneficiary on contract designations such as IRAs, life insurance policies, 401(k)s, etc. This avoids a situation where your named beneficiary predeceases you, requiring that you revise the beneficiary of each policy or asset. The trust also provides for contingencies in the event something happens to the named beneficiary. The asset would not revert to your name, but would continue to be paid per the contingencies set forth in the terms of the trust.

The last major benefit of a trust is that it can be used to reduce estate taxes. In 2010, there was no estate tax. As of today, there will be an estate tax on estates with a value over $1,000,000 starting in the year 2011. The highest estate tax rate will be 55%. Without some changes to the estate tax laws, this could impose a substantial estate tax burden for decedents with estates of $1,000,000. A decedent’s estate includes the value of all personal property and real property, jointly owned property, life insurance benefits, retirement income benefits and other assets. If you have a house which has retained some value in the recent economic times, a life insurance policy and some retirement benefits in an IRA or a 401(k) plan, it can be quite easy to accumulate $1,000,000 in assets.

The disadvantage of a trust principally is the time and expense necessary to establish and create a trust. It is important to remember that the cost to create of the trust, incorporating your priorities on distributions, controlling the assets and the contingent distributions of your trust assets upon your death, are no more than what would occur after your death through the probate court. In essence, you are administering your estate and making decisions as to your intent and priority on distributions while you are alive and able to control these decisions. Without the trust, you are leaving it to a third party’s discretion and their determination of what your intentions were to make distributions in the event of unplanned contingencies.