Safeguard Your Financial Legacy

Guy Holman has plans to keep his business in the family.

owe when you die (e.g., mortgage)? What deductions will be taken from your estate (e.g., administration costs and marital deductions)? Starting in 2002, the amount you can pass to heirs tax-free increases to the first $1 million of your estate and the top tax rate is 55% on amounts greater than $3 million, compared to the current estate tax threshold of $675,000 and a top tax rate of 55%.

  • Figure out how your property will be distributed in a tax-efficient manner. Many stock brokerage accounts are registered as joint tenants with rights of survivorship. This title results in the immediate transfer of the account to the surviving joint owner upon the death of the other tenant. Aside from these accounts, your assets are distributed according to beneficiary designations (e.g., life insurance, retirement plans, and annuities).
  • Create a trust. While wills delineate what part of your estate your loved ones get, they are virtually always subject to probate court, which can take nine months to two years. A living trust saves the expense and time of probate. A revocable trust means you can change it; irrevocable means you can’t touch it. Testamentary trusts are alternatives to living trusts. They become legal only when you are laid to rest. Some people use such trusts to isolate funds–for instance, property for your children from a first marriage.
  • Review your life insurance policies. Before you choose an amount for an insurance policy, you should take into account how much income you would like to leave behind in the event of your untimely death. A $100,000 policy may not be enough for a young spouse with a mortgage, children, and credit card bills. In general, financial experts say you should have five to eight times your current income in insurance coverage.
  • Once you have made a net worth statement (assets minus liabilities), consult an estate-planning professional–not an insurance representative.
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