Estate planning is designed to control the use, conservation, and transference of wealth. By implementing an estate, upon the transference of wealth, estate taxes will be help to a minimum. In addition, provisions will be put in place to take case of the spouse and family of the deceased. However, the structuring of the estate ultimately depends on the goals of estate (ranging from taking care of a spouse, children , or grandchildren). Once the goal has been determined, the proper tools will be implemented to structure that specific estate.
Upon death, there are four primary methods in which wealth is transferred:
1. Will - A will is a written document that takes effect at the death of the person signing it (the "testator")
2. Living Trust - A living trust (sometimes called an "inter-vivos" trust) is a document that is revocable at any time by the person signing it ("grantor")
3. Joint tenancy - Joint tenancy is a method of holding title to property when two or more people own property together, but the last survivor will own the property outright.
4. Community property - California is a community property state which means that any earnings and assets acquired during the marriage belong equally to both spouses, regardless of who actually earned the income
More specifically, there are other trusts that are designed to help ensure the wishes of the trustee are met. These tools include:
1. Credit-shelter trust - You’ll write a will bequeathing an amount equal to the estate-tax exemption to the trust, specify how you want the trust to use those assets and pass the rest of your estate to your spouse. This effectively doubles the amount of your estate that is shielded from taxes—since when your spouse dies, his or her estate will also be able to use the exemption.
2. Generation skipping trust - allow you to transfer up to $3.5 million in 2009 ($7 million with your spouse) to beneficiaries who are at least two generations your junior.
3. Qualified personal residence trust - allows you to give away your home, generally to your children, while you keep control of it over a period that you stipulate, typically five to 15 years.
4. Irrevocable life insurance trust - allow you to shield the proceeds of your life insurance from estate taxes. When you place your policy in this type of trust, you surrender your ownership rights, meaning you can no longer borrow against the policy or change your beneficiaries.
5. Qualified terminable interest property trust - enables you to direct your assets to certain relatives. Essentially, when you put assets into a QTIP trust, your spouse will receive income from it after you die—and then the beneficiaries you specify will get its principal after she dies.
Links:
http://library.findlaw.com/1999/Jan/1/241495.html
http://www.smartmoney.com/personal-finance/estate-planning/estate-planning-without-anxiety/
http://www.californiaestateplanninglawyerblog.com/2007/03/estate_planning_following_a_lo.html
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