c.Disadvantages ofliving trust over traditional willi.Up front legal cost ofdrafting ofliving trust is somewhat greater than for a traditional will - however,thedifference in cost should not be substantial,and is more than offset by the cost savings in the futurethrough probate avoidance (and possible estate tax savings,as discussed below)ii.Care and time must be taken after the trust is established to transfer title to your various assets to the trustee(a)The paperwork up front is again worth the savings down the line,however;(b)Assuming you act as your own trustee,the fact that the title to your assets would now be in the name of the trust should not be a deterrent to establishing the trust;(c)In the event that all assets are not transferred into the trust,you would use a "pour over" will inconjunction with the trust to ensure that all assets ultimately end up in the trust.
B.BASIC ESTATE TAX PLANNING1.For those individuals who expect to have assets at death valued in excess ofthe Federal estate tax"applicable exemption amount" (or who are close to the threshold amount),planning steps should betaken to avoid or minimize the Federal and Illinois estate tax.
a.The "applicable exemption amount" is $2,000,000 as of2006 and is scheduled to increase to $3,500,000 in 2009. The estate tax is fully repealed in 2010,but subject to further legislation,this repeal will only last for one year,at which time the applicable exemption amount will revert to the prior law amount of$1,000,000.b.In this regard,the proceeds ofany life insurance policies and employee benefits should be considered,as well asthe value ofany real estate,stocks,bonds,bank accounts or other assets;c.Without proper planning,estate tax may unnecessarily be paid,thus reducing the amount passing to your heirs;d.The current estate tax brackets effectively start at 37 percent and may be as high as 46 percent in 2006(decreasing to 45 percent in years 2007 through 2009) - consequently,the tax exposure may be substantial.
2.In planning for estate tax minimization,two concepts are key - the applicable exemption amount and theunlimited marital deduction.
a.Under current law,each individual may give away up to the applicable exemption amount at his or her death without paying any estate tax.The amount ofthis exemption is set forth above;b.In addition,for married individuals,an unlimited marital deduction is allowed at the first death for any property which passes to the survivor,regardless ofamount;i.Example:Husband owns $3,000,000 worth ofassets,all held in joint tenancy with Wife.Upon Husband'sdeath,all property passes to Wife.No tax is payable as a result ofHusband's death due to the unlimitedmarital deduction (BUT WHAT HAPPENS ON WIFE'S DEATH?...SEE BELOW);ii.The unlimited marital deduction is not available,however,ifthe surviving spouse is not a United Statescitizen (even though a resident alien),unless a special type oftrust,known as a QDOT,is established;iii.Any existing wills or trusts executed before 1982 should be reviewed,as substantial changes in the estate tax law have occurred,and the unlimited marital deduction may not be available for those documents,unless revised.
Planning for the Future | Page 3