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Basic Estate Planning Questions and Answers
This article will address those questions most often asked of our estate planning attorneys by our clients.
What happens if I pass away and I don't have a will?
When a person dies without a will, or intestate, the Connecticut statutes determine how a person's estate will be distributed. If the decedent was married with children, the first $100,000 goes to the spouse, and, of the balance, one-half goes to the spouse and one-half to their children. If married without children, the first $100,000 goes to the spouse, and, of the balance, three-fourths goes to the spouse and one-fourth to decedent's living parents, if any.
Do any estate taxes have to be paid if my spouse and I leave our estates to each other and then to our children?
Spouses who provide for each other with a will can leave an unlimited amount of assets to each other without having to pay estate taxes, or, if all of a couple's assets are owned jointly, upon the death of the first to die, all assets pass automatically to the survivor without being subject to estate taxes. Upon the death of the survivor, however, the survivor's entire estate in excess of the exemption amount in effect (currently $675,000, increasing gradually to $1,000,000 in the year 2006) will be subject to estate taxes. Estate tax rates currently range from a minimum of 34 percent to a maximum of 55 percent.
How can my spouse and I shelter our assets from estate taxes and still ensure that we are both provided for?
The simplest way to ensure that a husband and wife fully maximize their ability to shelter their estates from estate taxes and still provide for each other is to use exemption trusts (also known as "A/B trusts," "credit shelter trusts," "family trusts") whereby husband and wife each leave assets worth the exemption amount then in effect to an exemption trust for the benefit of the survivor. The surviving spouse can be the trustee of that trust and can use the trust's assets for his or her health, education, maintenance and support. Upon the survivor's death, the assets previously set aside in an exemption trust will not be taxable, even if those assets appreciate. This structure will ensure that a husband and wife shelter at least twice the exemption amount.
Is it appropriate for my spouse and me to own all of our assets jointly?
If all of your assets are owned jointly, upon the death of the first of you to die, all assets pass automatically to the survivor without being subject to estate taxes. Upon the death of the survivor, if his or her estate exceeds the exemption amount, the excess will be subject to estate taxes at that time. If your combined estates exceed $675,000, and exemption trusts are created in order to utilize both your and your spouse's exemptions, it will be more beneficial for each spouse to own assets in his or her individual name rather that jointly.
Should my spouse be the beneficiary of my retirement plan?
Whether or not a spouse should be the beneficiary on a retirement plan is dependent upon the size of the entire estate and the nature of the other assets that comprise the estate. Retirement assets must be given special attention since they are subject to both estate taxes and income taxes. Therefore, it is critical to make the proper beneficiary designation in order to maximize protection from estate taxes while maintaining the opportunity to defer the payment of income taxes that occurs when money is withdrawn from a retirement account.
I have a significant amount of life insurance. Are the insurance proceeds taxable in my estate?
Life insurance proceeds, similar to any other asset, are taxable. However, a simple planning technique, an Irrevocable Life Insurance Trust, enables a spouse to benefit from insurance proceeds during his or her life and ultimately transfer the proceeds to children and grandchildren without being subject to estate taxes. Alternatively, a second-to-die policy, which insures the lives of a husband and wife, can be owned by an Irrevocable Life Insurance Trust and the proceeds sheltered from estate taxes for the benefit of children and grandchildren.
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