2022 AFBA Financial Planning Guide

TECHNIQUES USED IN ESTATE PLANNING

TECHNIQUE

ADVANTAGES

DISADVANTAGES

Ensures that property is maintained to provide income to surviving spouse; gives property to surviving children after death of second spouse; may minimize estate tax for married couples. Ensures receipt of gift by charity; provides immediate gift tax deduction; provides income to non-charitable beneficiaries during their lifetime. Allows expected descendent to appoint an individual to manage his or her affairs during a period of disability without court appointed guardianship. Allows expected descendent to transfer during his or her lifetime property to an intended beneficiary; can avoid taxes if amount of gift is under the annual exclusion limit. Avoids probate and protects privacy while providing financial management of personal affairs during periods of disability. Allows an individual to specify medical treatment in the event they become terminally ill.

Assets must be individually owned by the spouses; may be expensive to establish and maintain; assets in the trust are not under the direct control of the surviving spouse.

Bypass Trust

Some taxpayers may not be able to use the gift tax deduction.

Charitable Remainder Trust

Potential of abuse of authority by appointed individual.

Durable Power of Attorney

From a tax perspective it may not be suitable to make gifts of high value, non-divisible assets.

Gifts

Living Trust

Can be expensive to establish and maintain.

Living Will

No major disadvantages.

Joint Tenant has legal rights over property during the expected descendent’s lifetime; surviving tenant may pay capital gains tax.

Property Ownership Through Joint Tenancy

Inexpensive to implement; transfers property at death without probate.

Provides trust income to the surviving spouse while allowing the originator of the trust to control the final distribution of the trust assets. Specifies the release of money at designated intervals, thereby ensuring continued beneficiary support over a period of time.

Qualified Terminable Interest Property Trust (Q-TIP)

No major disadvantages.

Spendthrift Trust

No major disadvantages.

b. Joint Ownership. Property that is jointly owned passes directly to the surviving owner when one of the original owners dies. c. Trusts. A trust is a legal entity that is established to hold and manage something of value. Since the trust is a separate legal entity, the property held by the trust will avoid the probate process and, depending upon the type of trust, may also avoid estate taxes. Trusts are further discussed in the next section. For more estate planning techniques, see the chart above. 9–4. TRUSTS. A trust is an agreement whereby a person makes arrangements to give his or her property to someone

Even for modest estates the process can be long and costly, and for wills that are being contested, the process can become interminable. Also the property that is included in the estate may be subject to taxation. Your goal should be to minimize the amount of your estate that is subject to probate. This process is called estate planning. Three of the simplest ways to avoid probate is through gifts, joint ownership, and trusts. a. Gifts. One way to keep property out of your estate is to give it away before you die. For the 2022 tax year, gift limits are $16,000 per recipient. Gifts are a good way to give away property that may grow in value because neither the property nor any subsequent increase in value will be included in your taxable estate.

CHAPTER 9: IMPORTANT PAPERS, WILLS & TRUSTS

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