Estate planning provides the best way to be prepared for unexpected incapacity and death. An estate plan can include many different types of documents, including wills and trusts. The variety of tools available will allow for a customized and comprehensive estate plan. Here are some of the top estate planning techniques you can use.
Technique No. 1 – Revocable Living Trust
A revocable living trust is a device used to avoid probate and provide management of your property, both during life and after death. A living trust goes into effect during your lifetime, as opposed to being created by your will after your death. As with other types of trusts, the property you place in trust will be managed by a trustee, and then distributed to your beneficiaries as you instruct. One benefit of a living trust is that you can name yourself to serve as trustee while you are alive, and then a successor trustee will take over when you die. Living trusts are valid in all fifty states regardless of where the trust was originally created.
Technique No. 2 – Property Power of Attorney
A property power of attorney is a flexible estate planning tool that allows you to choose someone who will manage your property. The person who signs and executes the power of attorney is known as the “principal.” The person authorized to act on behalf of the principal is the “agent” or “attorney-in-fact.” If it is a “durable” power of attorney, then it will remain in effect even if you become incapacitated.
Technique No. 3 – Advance Healthcare Directive
An Advance Healthcare Directive is another type of power of attorney that allows your agent to make health care decisions for you should you become incapacitated. An Advance Healthcare Directive can be an alternative to a conservatorship. A directive is not a very complex legal document and it is much less expensive than a conservatorship, which is court-supervised. With a directive your loved one will have the ability to choose their own agent to act on their behalf, rather than having a conservator appointed by the court.
Technique No. 4 – Annual Gift Tax Exclusion
The Annual Gift Exclusion makes gifts that do not exceed the annual exclusion amount for that calendar year exempt from taxes. The Annual Gift Tax Exclusion amount for 2017 is $14,000 per recipient. Put more simply, you can give away as much as $14,000 during the calendar year to any one recipient you choose, without any tax consequences. You can give as many of these $14,000 gifts as you choose to different people, including family, friends or strangers.
Technique No. 5 – Irrevocable Life Insurance Trust
An Irrevocable Life Insurance Trust transfers all rights to the transferred property to the trust itself, without retaining a right to revoke the trust, or materially modify its terms. When an irrevocable trust is used for a life insurance policy, it becomes an ILIT.
Technique No. 6 – Family Limited Partnership
A Family Limited Partnership is an entity used to provide asset protection for partnership property, protecting it from the creditors of a partner. It can also allow partners to give gifts to children and parents while maintaining management control and reducing the transfer tax value of the property.
Technique No. 7 – Charitable Remainder Trust
A charitable remainder trust allows you to transfer property to a charitable trust while retaining an income stream from the property transferred to the trust. As the donor, you can receive a charitable contribution income tax deduction and avoid a capital gains tax on the transferred property.
The purpose of estate planning is to prepare clients and their families for the possibility of incapacity and death. There are several different estate planning tools you can use for your plan, depending on the goals you have for the future. An experienced and qualified estate planning attorney can help you choose the right tools for your estate plan.
If you have questions regarding estate planning techniques, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.
