Checking Accounts/Savings Accounts/CD’s/Stocks/Mutual Funds: The name of the current owner on these assets will change to the name of the Trust.  You will probably  have to do this in person for checking accounts and savings accounts as the bank will want you to sign a new signature card.  Instead of signing the checks as Joe Smith you will sign them as Joe Smith, Trustee.  Before doing this with your CD accounts, check with the bank if they will impose a penalty if you transfer it before the period has run.

L ife Insurance: You will remain as the named owner on the Life Insurance Policy.  You will request that the Revocable Living Trust be named as the beneficiary.

Annuity:  It is recommended that if you are married that the spouse remain as the primary beneficiary and if you have children, they should be named as secondary beneficiaries.  This is due to the fact that there are certain options available to a spouse that are not available to a Living Trust.

IRA: If between a husband and wife, then  the ownership must remain in the name of one of the spouses and the primary beneficiary as the surviving spouse.  The Revocable Living Trust can be made the secondary beneficiary.  You MUST check with your CPA to determine if there are any income tax consequences to these changes.

Personal Property: Typically any property that does not have a physical title (such as household furnishings, jewelry, clothes, etc.) is handled by a document called “Assignment of Furniture, Furnishings and Personal Effects”.  This document is signed at the time your Revocable Living Trust is signed.  Not only does it transfer the assets you currently have into the Revocable Living Trust but it also transfers any future property of that nature.

Real Property:  The deed will be re-recorded with the name of the Revocable Living Trust as the owner.  You should contact you insurance company prior to making this change to determine if they will allow a Revocable Living Trust to be a secondary insured on the policy.  You should check with your mortgage company as well.

However, this exclusion is not automatic.  The gift must be given in such a way as to constitute a “present interest”.  A direct, outright gift, or gift in custodianship qualifies.  But, a gift in trust will not qualify unless the beneficiary has the right to withdraw the gifted amount from the trust.  Even a minor beneficiary must be given the legal right to withdraw, though that right would not be exercised as a practical matter.

While Trusts are not needed to get the tax benefit, they are commonly used.  That is, you could leave the exemption amount directly to the children and the rest to your spouse.  But, Trusts can provide money management, ceditor protection, ongoing tax benefits and flexibility.  For Example, the credit shelter trust could pay all income to your spouse and your souuse could have the right to withdraw 5% of the principal per year, without causing that trust to be inlcude din the spouse’s estate. The Trustee could also have the discretion to use principal for your spouse’s health, education, maintenance and support.  Or, the Trustee could be given additional options to benefit your children.

Assets that are included in determining the value of your Estate may surprise you.  Your gross estate for Federal estate tax purposes is a broad concept.  It is not limited to probate property or by state tax exemptions.  It includes all your property of every kind and nature, tangible and intangible, however acquired or owned, whether inside or outside the country.   Ultimately, the first step in Estate Planning is taking an inventory of everything you own, such as:

1.  cash, checking and savings accounts, CDs and money market funds;

2.  stocks, bonds, mutual funds;

3.  life insurance, employee benefits and annuities;

4.  your home (regardless of homestead exemptions) and any other real estate, land and buildings,

furniture and fixtures;

5.  business interests such as proprietorships, partnerships, limited liability companies, close corporations

and farm interests;

6.  notes, accounts and claims receivable;

7.  interests in Trusts and powers of appointment;

8.  antiques, art work, collections, cars, boats, planes and personal effects

Most people do not have to be concerned with Federal Estate Taxes because most people do not have estates large enough to be subject to those taxes.  The current Federal Estate tax exemption in 2009 is $3,500,000.  But, if your networth (basically the value of the assets above minus any debt) exceeds $3,500,000, or may in the near future then estate taxes should be factored into your plans.

To put it simply, if you pass away in 2008 and the value of your estate exceeds $2,000,000, anything over $2,000,000 will be taxed at the rate of 45%.  If you pass away in 2009 and the value of your estate exceeds $3,500,000, anything over $3,500,000 will be taxed at the rate of 45%.  Passing away in 2010 provides the greatest benefit; your estate can be of any amount and it will not be taxed.  More than likely in 2011 the excluded amount will be back down to $1,000,000; affecting many more clients.

How does the Federal Government determine the value of your estate? They will look at every asset that you own whether you own it in your name alone or together with someone else.  The assets include (but are not limited to) your home, rental property, stock accounts, checking accounts, savings accounts, IRAs and 401Ks.  In addition, they will take into account the value of any life insurance you own.  Yes, I know, this really isn’t your money, but that does not matter, and that discussion I will leave for another Blog all its’ own!

There are numerous methods that can be used to protect an Estate from being taxed. Avoiding taxes is legal; evading taxes is not!  If you are married, you are permitted to pass all your property to your spouse without incurring any Estate tax, regardless of the amount that is passed. Any potential Estate Tax will be imposed on the estate of the second spouse to die.  Trust me, when the children hear this they are all on board spending the extra money today to have the proper documents in place!

For example, a married couple can take advantage of what is called an AB Trust (or also known as a Credit Shelter Trust).  Without getting too detailed, when the first spouse passes away, a certain amount of assets is placed into a trust for the benefit of the surviving spouse.  The remaining assets pass directly to the surving spouse.  When the second spouse passes away the trust assets are left to the children.  This allows for legally avoiding an Estate Tax.

It is so important to speak with an attorney to make certain that you utilize any resources and methods that will allow for the maximum amount of your assets to pass to your family.