Estate Planning

Probate. This is the legal review process, overseen by the local probate court, which occurs after your death. It’s designed to ensure your assets are disbursed according to your will or, if there’s no will, according to state law. Not all assets pass through probate, including assets held jointly with right of survivorship and retirement accounts with beneficiary designations.

Right of survivorship. If you own a house, car or other property jointly with right of survivorship, it passes directly to the survivor upon your death and doesn’t go through probate.

Beneficiary designations. Assets in retirement accounts and trusts, and proceeds from life insurance policies, typically pass to the beneficiaries named on these assets, rather than to the heirs named in your will.

Trusts. A trust can be created while you’re still alive or upon your death. Trusts are formed for a host of reasons, including protecting assets from creditors, saving on estate taxes, avoiding probate and controlling how assets are used after you die.

Gift-tax exclusion. This is the annual sum that you can give to another person, without worrying about the gift tax.

Federal vs. state estate tax. Federal estate taxes are levied on estates with multi-million-dollar values. Meanwhile, roughly a third of states have their own estate or inheritance tax. These typically kick in at lower asset levels than the federal estate tax.

Inheritance tax. While estate taxes are levied on the total sum bequeathed, inheritance taxes are levied on the recipients of the money. Only a handful of states levy inheritance taxes. Certain heirs may be exempt from the tax, such as your spouse and children.

Estate tax exclusion. This is the total sum that you can bequeath free of federal estate taxes. If, in any year, you give more than the gift-tax exclusion to someone, the amount in excess of the gift-tax exclusion will reduce the total sum you can bequeath tax-free upon your death.

Unlimited marital deduction. Neither the gift-tax exclusion nor the estate tax exclusion matter when passing assets to your husband or wife. Both during your lifetime, and upon your death, you can give an unlimited sum to your spouse.

Step-up in basis. Under current law, if you own, say, a home or stocks in a taxable account that are worth more than the price you paid, the cost basis of these assets is stepped up to their current market value as of the time of your death, thus eliminating the potential capital-gains tax bill.

Power of attorney. In case you become incapacitated, you might draw up powers of attorney to designate others to make financial and medical decisions on your behalf.

Living will. This document specifies your wishes concerning life-prolonging medical procedures.

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