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Dissecting the contents of a will
For many people, the first thing they think of when they hear the words “estate plan” is a will. And for good reason, as it’s the cornerstone of any estate plan. But do you know what provisions should be included in a will and what are best to leave out? The answers to those questions may not be obvious.
Understanding the basics
Typically, a will begins with an introductory clause, identifying yourself along with where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills.
After the introductory clause, a will generally explains how your debts and funeral expenses are to be paid. Years ago, funeral expenses were often paid out of the share of assets going to an individual’s children, instead of the amount passing to his or her spouse under the unlimited marital deduction. However, now that the inflation-adjusted federal gift and estate tax exemption has increased to $11.7 million for 2021, this may not be as critical as before.
A will may also be used to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you.
Making specific bequests
One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside of your residuary estate, you’ll likely want to make specific bequests of tangible personal property to designated beneficiaries.
If you’re using a trust to transfer property, make sure you identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items aren’t suitable for inclusion in a trust. If your estate includes real estate, include detailed information about each property and identify the specific beneficiaries.
Finally, most wills contain a residuary clause. As a result, assets that aren’t otherwise accounted for go to the named beneficiaries.
Addressing estate taxes
The next section of the will may address estate taxes. Remember that this isn’t necessarily limited to federal estate tax; it can also apply to state death taxes. You might arrange to have any estate taxes paid out of the residuary estate that remains after assets have been allocated to your spouse.
Naming an executor
Toward the end of the will, the executor is named. This is usually a relative or professional who’s responsible for administering the will. Of course, the executor should be a reputable person whom you trust. Also, include a successor executor if the first choice is unable to perform these duties. Frequently, a professional is used in this backup capacity.
Turn to the professionals
Regardless of your age, health and net worth, if you want to have a say in what happens to your children and your wealth after you’re gone, you need a will. Contact us for assistance with tax-saving estate strategies and contact your attorney to help you draft your will.
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One final item, please note that a Will never avoids probate. It is a roadmap that tells probate how you want things done. In order to avoid probate you have to use a trust or other method of distributing your property.
FMD’s estate planning team will work with you and your legal and financial advisers to design plans that align with your goals and objectives. When it comes to estate planning and wealth preservation, every one of our clients receives the quality of service and personal attention that are the hallmarks of FMD. To learn more about how we can help address your estate planning and wealth preservation needs, contact us today.
Creating an education legacy using a family education trust
For many people, an important goal of estate planning is to leave a legacy for their children, grandchildren and future generations. And what better way to do that than to help provide for their educational needs? A 529 plan can be a highly effective tool for funding tuition and other educational expenses on a tax-advantaged basis. But when the plan’s owner (typically a parent or grandparent) dies, there’s no guarantee that subsequent owners will continue to use it to fulfill the original owner’s vision.
To create a family education fund that lives on for generations, a carefully designed trust may be the best solution. But trusts have a significant drawback: Unlike 529 plans, the earnings of which are tax-exempt if used for qualified education expenses, trusts are subject to some of the highest federal income tax rates in the tax code.
One strategy for gaining the best of both worlds is to establish a family education trust that invests in one or more 529 plans.
Plan basics
529 plans are state-sponsored investment accounts that permit parents, grandparents and other family members to make substantial cash contributions. Contributions are nondeductible, but the funds grow tax-free and earnings may be withdrawn tax-free for federal income tax purposes provided they’re used for qualified education expenses. Qualified expenses include tuition, fees, books, supplies, equipment, and some room and board at most accredited colleges and universities and certain vocational schools. Contributions to 529 plans are removed from your taxable estate and shielded from gift taxes by your lifetime gift and estate tax exemption or annual exclusions.
In addition to the risk that a subsequent owner will use the funds for noneducational purposes, disadvantages of 529 plans include relatively limited investment choices and an inability to invest assets other than cash.
Holding a 529 plan in a trust
Establishing a trust to hold one or more 529 plans provides several significant benefits:
It allows you to maintain tax-advantaged education funds indefinitely (depending on applicable state law) to benefit future generations and keeps the funds out of the hands of those who would use them for other purposes.
It allows you to establish guidelines on which family members are eligible for educational assistance, direct how the funds will be used or distributed in the event they’re no longer needed for educational purposes, and appoint trustees and successor trustees to oversee the trust.
It can accept noncash contributions and hold a variety of investments and assets outside 529 plans.
A trust may also use funds held outside of 529 plans for purposes other than education, such as paying medical expenses or nonqualified living expenses.
Plan carefully
If you’re interested in setting up a family education trust to hold 529 plans and other investments, contact us. We can help you design a trust that maximizes educational benefits, minimizes taxes and offers the flexibility you need to shape your educational legacy.
© 2021
FMD’s estate planning team will work with you and your legal and financial advisers to design plans that align with your goals and objectives. When it comes to estate planning and wealth preservation, every one of our clients receives the quality of service and personal attention that are the hallmarks of FMD. To learn more about how we can help address your estate planning and wealth preservation needs, contact us today.
Take control of your charitable donations using restrictions
Did you know that you can put restrictions on charitable donations you make through your estate? If you want the peace of mind that your donations are used to fulfill your intended charitable purposes, you’ll need to take the steps to add restrictions.
Reasons to add restrictions
Even if a charity is financially sound when you make a gift, there are no guarantees it won’t suffer financial distress, file for bankruptcy protection or even cease operations down the road. The last thing you probably want is for a charity to use your gifts to pay off its creditors or for some other purpose unrelated to the mission that inspired you to give in the first place.
One way to help preserve your charitable legacy is to place restrictions on the use of your gifts. For example, you might limit the use of your funds to assisting a specific constituency or funding medical research. These restrictions can be documented in your will or charitable trust or in a written gift or endowment fund agreement.
Restrictions in action
Depending on applicable federal and state law and other factors, carefully designed restrictions can prevent your funds from being used to satisfy creditors in the event of the charity’s bankruptcy. If these restrictions are successful, the funds will continue to be used according to your charitable intent, either by the original charity (in the case of a Chapter 11 reorganization) or by an alternate charity (in the case of a Chapter 7 liquidation).
Do your homework
In addition to restricting your gifts, it’s a good idea to research the charities you’re considering, to ensure they’re financially stable and use their funds efficiently and effectively. One powerful research tool is the IRS’s Tax Exempt Organization Search (TEOS). TEOS provides access to information about charitable organizations, including newly filed information returns (Form 990), IRS determination letters and eligibility to receive tax-deductible contributions. Contact us if you have questions regarding your charitable donations.
© 2021
FMD’s estate planning team will work with you and your legal and financial advisers to design plans that align with your goals and objectives. When it comes to estate planning and wealth preservation, every one of our clients receives the quality of service and personal attention that are the hallmarks of FMD. To learn more about how we can help address your estate planning and wealth preservation needs, contact us today.