Why Everyone Needs an Estate Plan, Part 1: The Basics

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The biggest mistake people make is thinking that estate planning is only for the ultrawealthy. That couldn’t be further from the truth.

The fact is that we are all going to die, and if you don’t leave some sort of instructions on how your estate will be distributed, then the government will step in and disburse your estate in accordance with state law. Simply writing down your wishes, in some states, is all that you have to do.

In this article, we are going to explore the world of basic estate planning.

Estate Tax
When I meet with a client who wants to do estate planning, the first thing I do is see if they are subject to the estate tax. The tax professional part of me wants to protect all assets from the reach of the government. The fact of the matter is that the estate tax floor is $5.49 million in 2017. That is almost $11 million for married persons. Most people don’t have anything close to that amount in assets, so the estate tax is not an issue.

Why I Prefer Trusts Over Wills
Once the tax obligations are met, I then plan for death. There are a few ways that you can go. Most people know about wills, which are simply instructions to the probate court letting them know what to do with your assets. The downside to a will is that they need to go through a probate court and can be contested.

For example, let’s say there is someone who you want to exclude from your estate’s assets. That person can then contest the will with the state, and low and behold, he or she could gain rights to your property. For that reason alone, I like to use trusts.

A revocable living trust is my estate planning method of choice for those who are not subject to the estate tax. Revocable means that it can be changed, living means you are alive, and trust is just a legal contract. There are three parties that make up a trust:

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About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice for almost 23 years. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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Mar 21st 2017 02:46

Isn't the gift tax rate 40%?

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to RGlicksteen
Mar 21st 2017 16:45

Thanks for the catch, RGlicksteen. It has been fixed in the copy.

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to RGlicksteen
Mar 22nd 2017 10:41

With the tax law change in 2012 gift tax was reduced to 40 percent. Sorry for the confusion

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