Estate Planning

Track Planning

READ THIS SECTION IF YOU ARE ON TRACKS 1 OR 2

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To use this section effectively, first read the track that corresponds to the value of your estate. Read the background information that applies to your situation and pay careful attention to each of the action steps to help you get going on a specific strategy that's tailored to your needs.

Getting on the right track: How big is your estate?

Although there are some general strategies to follow for all people, if you have more than a certain amount of money and property (the applicable exclusion amount, currently $2,000,000) when you die, there are some extra steps you will need to take today. To decide what track to follow, you need to estimate the value of your estate.

The assets and debts that you leave behind are collectively called your estate. The value of your estate is calculated on the date of your death (or in some cases, six months later). Your estate includes the fair market value of all assets you own outright and one-half the value of property owned jointly with your spouse. Any joint property you own with anyone else is included in your estate either (1.) at full value (if you cannot prove your original contribution) or (2.) at your share of the value (if you can prove your contribution). A life insurance policy in which you had certain rights is also included.

You have to include the value of IRAs, 401(k) accounts, and even money people owe you (such as loans you made or money you earned and haven’t received yet). You are allowed to reduce this amount by debts such as medical bills, mortgages, and bona fide personal loans; taxes due; charitable transfers; exemptions; and certain deductions such as the unlimited marital deduction.

What’s Your Estate Worth?

Add up everything you own and subtract everything you owe. The amount left over is your Net Worth. Certain adjustments are then made to determine your estate net worth.

CAUTION: If you’ve prepared a Gift Tax return (IRS Form 709) or gave anyone more than $12,000 in a single year, you may need to adjust your calculations. These tracks are based on not having made large gifts in the past. As you review this worksheet with your attorney he or she can assist you to make sure you have included all of your assets and liabilities.

The Applicable Exclusion Amounts

The government essentially allows each person to transfer a certain amount of assets free of estate and gift tax. The estate applicable exclusion amount increases so that by the year 2009 every person may transfer assets at death valued in the aggregate at $3.5 million free from estate tax. For lifetime transfers; i.e., gifts, the applicable exclusion amount is $1,000,000.

See the chart above to determine which track you are on. (Track 1 is under the estate applicable exclusion amount and Track 2 is over the estate applicable exclusion amount)

The value of assets excluded from estate tax is scheduled to increase as follows:

Year

2007 and 2008

2009

HOT TIP: Your estate plan should consider the increases in the applicable exclusion amount. Revisit wills and trust documents to determine if changes are required. Married couples should ensure that they have enough assets in their own names in order to take full advantage of the exclusion amounts.

When Things Change: Switching Tracks

Since there is no way of knowing when you will die, it is best to use your current financial position to determine which track to follow. If your situation changes, such as receiving an inheritance, a big award in a lawsuit or incurring a large debt, you may need to switch tracks.