While people with more assets tend to plan more for their death, many others could benefit from some of the same estate-planning techniques.

Basic Planning

Many people think that you have to be “rich” to need a will. While people with more assets tend to plan more for their death, many others could benefit from some of the same estate-planning techniques. For example, if you have minor children, if you care who gets your assets after your death or if you have assets over $675,000 at the minimum, your estate plan should include a will.

Children under 18 cannot inherit property in their own names. A guardian must be appointed to hold the property until the child reaches 18. If the parent dies and has not made some provision for appointing a guardian, the court will have to. The person appointed might not be whom the parent would have chosen. Also, the proceedings to have a guardian appointed may be very expensive and time consuming. This can be avoided by naming a custodian or trustee for any minor children in a will.

If you die without a will your assets will be distributed by the laws of intestate succession. This may vary dramatically from the way you would want. For example, if you die without a will and have a spouse and two or more children, your spouse only receives the first $30,000 of personal property and one third of the balance of the rest of your property. The remaining balance is divided up among your children, even if your children are of adult age. No provision at all is made for any stepchildren.

The Estate Tax

The federal estate tax applies to people who die with assets valued over $675,000 at the time of death. This amount will rise to $1 million by the year 2006. This amount is allowed to be excluded (or sheltered) from federal estate taxes. At first this would seem to apply only to the rich, but this is deceiving. The $675,000 includes the proceeds of any life insurance policies you own (or have the right to change the beneficiary), any IRA, 401K, Keogh plans, profit sharing or pension benefits and quite often the value of the family home.

With more people investing in the stock market, mutual funds and other investment accounts, combined with rising real estate values, many people who do not think of themselves as wealthy may find that Uncle Sam certainly thinks so. Also, the assets are valued as of the date of death, so the amount could be substantially more than when the asset was purchased or when the will or estate plan was created. The estate tax can be especially nasty to business owners who desire to pass their business on to other family members at their death.

Some ways to reduce estate taxes include the unlimited marital deduction, unlimited charitable deduction and the exclusion amount. A spouse can leave as much property as he wants to the surviving spouse free of any death tax. This can be in an outright gift to the spouse or in a trust specifically designed for the spouse. If the spouse does not use, spend or otherwise dispose of the property, it is taxed at his/her death. The unlimited charitable deduction allows any property to be left to a qualified charity free of any death taxes. The exclusion amount allows each person to shelter a certain amount from federal estate tax. For the year 2000, the amount is $675,000 and will rise to $1 million in the year 2006.

The amount of tax owed will depend on how much your estate is valued above the exclusion amount at your death. Current rates begin at 37 percent for assets over $675,000 and increase to 55 percent if your assets are valued above $3 million.

In the next several issues, we will provide some general advice regarding estate planning.

The information contained in this article should not be construed or relied upon as legal advice. Consult an attorney regarding the specific laws in your state.