Estate Planning 
You spend your entire life creating wealth. Estate planning is one of the key elements of personal financial planning. One of the principal objectives of financial planning is to be able to transfer as much accumulated wealth to your heirs and designated beneficiaries as possible -- a goal that is made easier through effective estate planning.
Estate planning is very goal-oriented. The goals that usually motivate people to engage in estate planning included securing enough capital to meet college education costs and other special needs, insuring financial security for family members in the event of the death of the head of household: taking care of oneself and one's family during a long-term disability; and providing for a comfortable retirement.
Estate planning allows property/asset owner how assets will be distributed. It also allows you to protect your heirs from unanticipated devastating expenses ranging from debts to taxes to administrative fees. If planning is not controlled by the estate owner -- it is done by the federal and state governments. The owner forfeits the right to arrange for the disposition of assets and the minimization of tax and other estate settlement costs.
Planning is especially important to individuals with:
- children who are minors
- children who are exceptionally artistic or intellectually gifted
- children or other dependents who are emotionally, mentally, or physically handicapped, and
- spouses who cannot or do not want to handle money, securities or a business.
The topics addressed below include:  
- Wills
- Executors
- Probate
- Estate Taxes
- Trusts
- Life Insurance
The material presented on our web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice, you may wish to consult a competent attorney, tax advisor, or accountant.
What is an Estate?
Your estate is your property--whatever you own. Your probate estate consists of the real an personal property that you own in your own name that can be transferred according to the terms of a will at death or under intestate laws if you have no valid will. A distinction must be made between the probate estate and the gross estate.
Your gross estate includes all the property subject to federal estate tax at your death, both probate and non-probate; Life insurance jointly held property with rights of survivorship, and property passing under certain employee benefit plans are common examples of non-probate assets that might be subject to federal or state estate taxes.
In addition, you may have property that is non-probate property and will not be part of your estate for federal estate tax purposes yet will pass to your family and form part of their financial security program.
There are two types of these assets:
Life Insurance - proceeds would not be included as part of the estate.
Financial Asset - social security payments to a surviving spouse and minor children are neither probate assets nor subject to any federal or state estate taxes.
Will
A will is a legal document or expression/declaration that specifies the details of how an individual wishes to dispose of their estate. Everyone who is concerned about how their assets will be divided should at the very least have a current and valid will.
The will should:
- Provide a description of your assets.
- Provide for the distribution of your assets to your heirs.
- Name an executor.
Name a guardian for your children.
Wills are simple to create however, should always consult a qualified attorney/probate lawyer. Courts have accepted simple handwritten wills drawn up without any legal counsel. Legal counsel may help you avoid many of the pitfalls associated with wills, especially in the area of contestability.
After death, wills must be brought before the courts. This process is called probate. This process could take several months or years and could cost up to 5% of estate.
Executor
It is usually, necessary to appoint someone to administer the estate. The individual can be familar to the deceased, a bank or trust. That individual who acts for, or "stands in the shoes" of the deceased is called the personal representative. If the personal representative is named in a will and the will is accepted as valid that person is known as the executor. To carry out the administration of the estate, the executor is responsible for:
Probate
Probate is a legal process where your executor goes before a court and:
Identifies the property in the estate.
Has the assets appraised
Pays all debts and taxes
Distributes the assets according to the will.
The pitfalls of probate:
Can probate be avoided?
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Probate is not necessary if all of a person's assets will pass automatically under joint ownership.
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Probate may not be necessary if the only asset is life insurance payable to a beneficiary.
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Probate is not necessary for assets that have a beneficiary designation such as IRA's, and employee benefits such as pension plans or profit sharing plans.
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Assets placed in a trust usually do not have to be probated because the assets are payable to named beneficiaries.
Estate Taxes
The federal estate tax, initially adopted by Congress in 1916, is tax on the right to transfer property at death. The Tax Reform Act of 1976 revised the federal estate tax to be a tax based on the value of all property and rights to property possessed by a decedent at his death or transferred by him by gift during his lifetime.
Exclusions:
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Unlimited Martial Deduction: Property transferred at death from one spouse to another is excluded from estate taxes.
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Annual Exclusion: An individual can gift any number of other individuals $11,000 each year without incurring a transfer tax.
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Unified (Lifetime) Credit: Each person is allowed lifetime credit. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001), signed into law by President Bush on June 7, 2001, repeals the estate tax for one year. Under the new law, the federal estate tax continues, but with increasing unified credits and decreasing top estate tax rates, until 2010 when it is repealed only for one year. Without future Congessional action, the 2001 federal estate tax rules will be reinstated in 2011, but with a $1 million exemption equivalent.
Trusts
A trust is a legal document that facilitates the transfer of property, and/or the income from that property to another party or parties. A trust is a relationship created when one party, the grantor (also called the settler or creator) transfers property to a second party, the trustee, for the benefit of third parties, the beneficiaries, who may or may not include the grantor. The property in the trust is called the trust principal or res (pronounced "race").
The trustee holds the legal title to the property in the trust and must use the property and any income it produces solely for the benefit of trust beneficiaries. The trust generally is created by a written document. The grantor spells out the substantive provisions (such as how the property in the trust is to be allocated and how income is to be distributed), as well as certain administrative provisions.
The trust may be living (created during the grantor's life) or testamentary (created in a will). It may be revocable or irrevocable. Property placed into a revocable trust can be regained and the terms of the trust altered or amended. Property placed into a irrevocable trust cannot be recovered by the grantor during its term. The establishment of trust is generally for those with substantial means.
Almost anything can be placed in a trust: bank accounts, stocks, bonds, real estate, personal property, and life insurance. Once the trust is established, assets can be placed into the trust by simply changing the name or title of the asset. If constructed properly the grantor can still maintain full control of the assets.
Purpose of Trusts
Trusts are designed for any number of reasons. The most common motives are to (1)attain income and estate tax savings and (2) manage and conserve property.
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Living Trusts avoid probate. Because a trust is recognized as a separate legal entity, distributions are made by a Trustee to named beneficiaries without any court involvement.
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Keeps the details of the estate private. Gives the grantors (Husband and Wife) full control of their assets while they are alive and competent.
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Allows assets to be distributed quickly upon death.
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A Living Trust arranges for a successor trustee to manage the assets should the Grantor trustee become incapacitated.
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A Living Trust is difficult to contest.
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A Living Trust with "A-B Provisions" effectively doubles the standard estate tax deduction for married couples. Life Insurance
Life Insurance can provide much needed cash to pay for fees and taxes and also allow for an easier distribution of all assets.
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Life insurance proceeds at death are passed to the beneficiary income tax free. Life insurance proceeds at death add to the value of the estate and therefore are subject to estate taxes. This can be avoided by having someone other than the insured own the insurance policy.
This can be accomplished in two ways:
1. The children of the insured can own the policy.
2. An irrevocable life insurance trust can be created and funded by life insurance. The trust is irrevocable because the insured (Grantor) cannot have any rights or powers over the trust and no incidence of ownership over the life insurance policy.
This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.
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CHRISTCO INVESTMENTS & ASSOCIATES
P. O. BOX 218056 | HOUSTON, TX 77218-8056
Local Phone 281) 493-4089
Toll Free 866-863-4835
Fax (281) 493-9838
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