Tax and Legal Issues for Estate Planning


Estate planning is a critical area of financial planning and should be completed at some point. If you’ve never engaged in estate planning before, there are several aspects that you’ll have to consider. Throughout the process of estate planning, there are some tax and legal issues that need to be evaluated.

Estate Taxes

When you are planning out your estate, the estate tax that is charged by the federal government should be considered. Estate taxes are taxes that are taken out of the total value of your estate once you die. By engaging in some careful planning, you can avoid the estate tax for your family. The IRS allows for an estate tax exemption if the total value of your estate is less than $5 million. This means that if your estate is worth less than $5 million, your family does not have to pay any estate taxes when you die.

Because of this rule, you may want to make some financial moves to get the value of your estate under the $5 million threshold while you are still alive. For example, if your estate is just barely above the $5 million threshold, you could give some of your money away to charity to get under that limit.

In addition to a $5 million estate tax limit, you also have a $5 million lifetime gift limit. This means that you can give up to $5 million to another party before you ever have to pay gift taxes. This gives you some leeway to get the value of your estate under the estate tax limit.

Wills and Trusts

When it comes to the legal issues surrounding estate planning, there are some documents that you need to create. By creating a will or a trust document, you can specify exactly what will happen to your property when you pass away. If you skip out on creating one of these documents, your estate could be contested. It will have to go through the probate court and the probate judge will be the one to decide how your property is distributed.

When you create a will, you get to specify what happens your property and you can also name the legal guardians for your minor children if you are unable to care for them. Once you set up a will, no one will be able to contest how your property is being distributed.

If you create a trust document, you can help your family completely avoid the probate process. When you have a trust, the executor of your estate can handle everything outside of the probate court. This means that your family will not have to go through the long, drawn out process that comes with it. You can also put specific conditions on your inheritance for certain family members. For example, if you want to make sure that a minor child receives a specific inheritance when he reaches a certain age, you can do that with a trust.

Living Will

When you engage in estate planning, you may also wish to create a living will or a healthcare directive. With these documents, you can specify what types of healthcare treatments you wish to receive in the future. For example, if you don’t want to live on a respirator for an extended period of time, you can specify this in your healthcare documents. You can also specify who you want to make decisions for you if you are unable to do so yourself.

By taking the necessary steps to engage in these estate planning processes, you can help eliminate a lot of confusion and make sure that things are handled the way you want.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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