Transfers, by will or trust, are governed largely by state law.
The
Uniform
Probate Code has been mainly responsible for defining the manner in which
states have developed this area of law. The Code emphasizes the similarities between
wills and trusts, arguing for laws to be developed covering both documents. This
approach has been accepted by over fifteen states, which have used the Code to develop
provisions dealing with estates of the deceased and non-testamentary transfers (i.e. -
trusts).
Where neither trusts nor wills are created to govern the estate of
the deceased, state intestate succession laws take over the administration of the assets of
the estate. The laws do not attempt to reserve the assets for the intended
beneficiaries of the deceased, so it is important to create valid and properly constructed
wills and trusts. Let us help you create valid wills and trusts.
Death taxes, or the taxes owed by a person at the time
of their death, are regulated by estate, probate, and gift tax law. An estate
tax is that tax which is owed by the estate of the decedent after death,
regardless of the manner in which the assets of the estate are distributed.
A second form of death tax is the inheritance tax,
which is owed by those who receive property from the estate. This tax
provides incentives to the decedent to disburse assets prior to death. The
assets then become the property of the person to whom they are transferred, so
the estate pays no taxes.
Federal estate taxes
generally apply when a U.S. citizen or resident alien dies leaving a gross
estate worth at least $1,000.000.
The estate tax due must be received by the IRS
exactly 9 months after the death of the decedent. Taxable property includes
all real estate, stocks, bonds, cash, life insurance, retirement benefits,
annuities, vehicles, jewelry and other personal property. This is the "gross
estate."
The taxable estate includes
all property that the decedent has the legal right to control or dispose of
while alive. In some cases, property given by the decedent many years before
death can also be taxed. In an estate where the entire unified credit is
available, any amount in the estate over $1,000,000 is taxable at a rate
between
41%-50%. The maximum tax rate for an estate is 50%. The Federal Estate Tax is set forth at
26
U.S.C. §2001.
People create estate plans in
order to distribute their assets to intended beneficiaries with the least
amount of tax consequences possible, either for the beneficiary or the
grantor. The normal method of estate planning involves the creation of a
will and/or trusts.
A
Power of Attorney is a written instrument whereby one person (principal) names
another person (agent) to perform certain designated acts on their behalf
which may include (but are not limited to) health care, legal and financial
matters. This power may become effective immediately or upon the incapacity
of the principal. A Living Will may be created in order to state a
person’s wishes regarding medical care and life-prolonging procedures in the
event of a terminal illness or a persistent vegetative state.
A decedent must create and
sign a valid will before death which can be probated, or validated, upon
death. If this is not done, then the assets of the decedent pass
according to the rules of intestate succession. The rules take into account such factors as whether
there is a surviving spouse, whether the surviving spouse is a first or
subsequent spouse, number of surviving children, if any, surviving parent(s),
if any, and other blood or legal relation. For additional intestate succession
rules in Indiana,
click here I.C. 29-1-2-1
A well-written will can save time,
money and reduce the legal expenses of the estate. Probating a poorly written will can be
expensive, reducing the assets of the estate and, incidentally, the assets transferred to the
beneficiary.
A will also gives the decedent the ability to
distribute his assets to any beneficiary he or she desires. Contingencies or
conditions can also be placed in wills to limit the ability of any
beneficiaries to gain ownership of the assets. A poorly or improperly
constructed will may prevent an asset from being distributed according to the
decedent’s final wishes.
Taxes can also be reduced or postponed
by a properly drafted will and or trust. In some cases, estate taxes can be eliminated. In any event, anyone wishing to create a will
or trust must be mindful
of any tax consequences.
Trusts can be created
separately from a will, but can also be included in the provisions of a will.
To learn more about trusts, click here. If the trust is part of the will
(a testamentary trust),
it takes effect upon the death of the decedent. The most likely reason for
such a trust is for management of the assets of the estate. There are many
types of trusts which may be drafted according to the particular needs of the client,
and we would be happy to discuss these options with you.
