Frequently Asked Questions
Below are answers to questions we are often asked.
- What is estate planning?
- What sorts of instructions are made as part of an estate plan?
- What are some typical estate planning documents?
- When should I start my estate plan?
- How can I reduce the federal estate tax owed upon my death?
- What is the difference between a will and a trust?
- What is the federal estate tax?
- What is the relationship between gift tax and estate tax?
- When does a gift become subject to the federal gift tax?
Have more questions?
We would be pleased to answer your specific questions. Call the offices of Longsworth Law LLC at (260) 436-1555 or contact us online.
Estate planning is a process to consider and ultimately create legally effective arrangements that meet your specific wishes upon your incapacity and death. Good estate planning is more than just a simple will. Estate planning ensures that your assets pass to the people and charities of your choice, minimizes the necessity of an adult guardianship if you become unable to care for yourself, and distributes your assets in the most tax-advantageous manner.
An estate plan consists of one or more documents that set forth instructions. A last will and testament controls the distribution of your property upon your death. A revocable (or “living”) trust is sometimes used in conjunction with the last will and testament. Advance directives such as a general durable power of attorney for financial matters or health care matters are used to control your financial affairs and health care decisions in the event of your incapacity.
For an example of a “simple” estate plan structure, please see our Downloads page. Several of the following documents are typically used as part of the estate planning process—
- Last will and testament
- Durable power of attorney for healthcare
- Living will or directive to physicians
- Durable power of attorney for financial matters
- Funeral planning directive
- Revocable (“living”) trust
- Irrevocable trust
- Family limited partnerships
The only time that you can prepare and implement an estate plan is while you are alive and have legal capacity to enter into a contract. If you are unable to manage your own affairs or suffer from some other disability that affects your legal capacity, your estate plan may be effectively challenged.
Federal estate taxes are only charged against estates with net values in excess of the amount set by the law in place at the time of the person’s death. There may be ways to reduce the value of your estate at death by making gifts throughout your lifetime, transferring assets to a spouse, and taking advantage of any marital deductions, and other wealth transfer mechanisms. These are often complicated matters requiring the assistance of legal counsel.
A will and a trust serve different purposes but are similar in that they both allow you to designate exactly how you want your assets and other personal property to be distributed to your friends, family and other loved ones after you die. The difference between a will and a trust is that, upon your death, a will is subject to the probate process, but a trust does not go through probate. A trust is administered outside of the probate court after you die. Probate avoidance is not always the most important goal of an effective estate plan, but it can be an important consideration depending on your state of residence and the location of your assets.
The federal estate tax is a tax on the value of your property transferred to your heirs upon your death. The federal government allows every person to give away, either through lifetime gifts or upon death, a certain maximum dollar value of property without being taxed. This is sometimes known as your federal estate tax “exemption” amount. Any assets that you own at your death exceeding your exemption amount are then subject to a progressive estate tax. Many states, including Indiana, also currently have some form of estate or inheritance tax in place in addition to the federal estate tax. The attorneys of Longsworth Law LLC can recommend ways for you to achieve your goals for your property upon death while simultaneously minimizing death tax liability to the fullest extent allowed under the applicable laws.
Unlike most tax structures, the federal estate tax and gift tax are unified and integrated into one tax system. The federal estate and gift tax impose a tax on transferring assets. The gift tax catches transfers made during your life and the estate tax catches the transfers at death. However, there are two different limits for the two types of transfers and a qualified estate planning attorney can develop an individual strategy that may result in significant reductions in the amount of tax imposed.
Under current law, gifts totaling more than $14,500 to one person in one year are considered a taxable gift and generate a potential gift tax. Gifts beyond the exemption limit are considered taxable gifts. There are sometimes exceptions when gifts of money are made for educational or medical expenses. Although you may not immediately owe gift tax upon making a taxable gift, taxable gifts do require the preparation and filing of a federal gift tax return.