An estate planning primer for 2011

Review the distribution of assets that bypass a will. Jointly owned property will transfer directly to the co-owner, while assets with named beneficiaries will transfer directly to those beneficiaries. If you don’t keep this in mind, some heirs could receive a higher percentage of the estate than you or your client intended. Beneficiaries of assets such as life insurance policies, 401(k) plans and IRAs should be reviewed after major personal changes, such as marriage, divorce or death.

Implement an annual gifting program. A person can make annual gifts up to $13,000, or $26,000 if the gift is split with a spouse, to any number of individuals without paying federal gift taxes. This strategy removes assets from the taxable estate as well as any future appreciation on or income generated from those gifts. Over a number of years, an annual gifting program can remove substantial assets from the estate.

Consider making charitable contributions during one’s lifetime. While charitable contributions made after death are free of estate taxes, that may not provide any benefit due to higher exemption amounts. Charitable contributions made during one’s life will still lower the taxable estate and provide a current income tax deduction.

Understand when a revocable living trust is appropriate. Living trusts can provide substantial estate planning benefits, such as removing assets from probate and preserving the use of the estate tax exclusion.

Shelter life insurance proceeds from estate taxes. While lifeinsurance proceeds are always free from federal income taxes, owning the policy oneself will cause the proceeds to be included in the taxable estate. Instead, you or a client may want a trust to own the policy, so the proceeds are excluded from the
taxable estate.