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Estate Planning for Dentists
Probably one of the most difficult and simultaneously most important components of your comprehensive financial plan is the preparation for your own mortality or incapacity. Many dentists do not want to contemplate their own death, but would instead prefer to focus on the present and live life to the fullest now.
The estate planning process allows you to focus on what’s important to you and your family and to allow you to develop a strategy to achieve your personal and professional goals, which are often one and the same. Whether you are most concerned with the distribution of assets upon your death, control of your financial affairs should you become incapacitated, or the minimization of estate and inheritance taxes, estate planning is a process that you need to embark upon.
A well-drafted estate plan should give you the ability to transfer what you own to whom you want, the way you want, and when you want them to receive it. Your estate plan should save every tax dollar, professional fee, and court cost that is legally possible. Keep in mind that without proper planning, the disposition of your assets will be determined by state law.
Thus, it is important to consult with an attorney regarding estate planning.
Wills
The cornerstone document of your estate plan is the will. Your will, also known as a last will and testament, is a statement that directs the distribution of your assets when you die. It names whom you want to handle your final affairs and who shall receive your assets in the manner you desire.
Though most Americans are aware that they need a will, the majority -- about 70 percent of us -- don't have one. People procrastinate for many reasons, but it's important to know that writing a will doesn't have to be complicated or expensive. And once it's done, you can rest a little easier knowing that your wishes will be followed after your death and your loved ones will be taken care of.
But did you know that your will only controls the assets that are titled in your name? Your will does not control assets that are titled in joint ownership and will go to the other person named on the joint account when you die. And it doesn't control assets with beneficiary designations, like your IRA, retirement benefits or life insurance policies.
So, to begin with, your will does not give you total control over all of your assets. When going through the estate planning process, you should check all of your accounts to make sure the beneficiary is, in fact, the person you want to receive that particular asset. There are other documents, that when properly combined with your will, can distribute your assets as intended.
Trusts
There are many different types of trusts that can be used in a variety of ways to preserve and grow assets while protecting your estate. The trusts’ creator can be referred to as the Grantor, Settlor or Trustor in the trust declaration. Once the trust is created, it is managed and administered by the party referred to as the Trustee, who is appointed by the Grantor. The Trustee then manages the trust to conserve and protect the assets for the beneficiaries.
A trust creates an arrangement, called a fiduciary relationship, with respect to the property that is held in the trust. In a trust, the Trustee is obligated to perform specific fiduciary duties to deal with and manage the property in the interests of the beneficiaries. Trustees -- except for Grantor Trusts where the Grantor is the acting Trustee -- are accountable for their actions to the beneficiaries.
Most people believe trusts are only available through a bank. Nothing could be further from the truth. Anyone can create and manage a trust, with or without the assistance of a bank or trust company. It is important to note that in certain cases, trusts may necessitate the use of a professional corporate Trustee, which could be a bank, a trust company or an accredited individual Trustee.
The following are required to establish a trust arrangement:
- An expression of intent by the Grantor to create a verbal or written trust.
- The adoption of the trust terms, by-laws and provisions.
- An appointment of the primary, alternate and contingent Trustee.
- The identification of the trust beneficiaries and their ability to access proceeds.
- The specific property to be transferred into the trust.
- The term or duration the trust is to remain effective, giving consideration to any rule against perpetuities.
Two of the more commonly recognizable trusts are the Revocable Trust and Irrevocable Trust. The type of trust you use depends on your financial situation and your estate planning objectives. One important point: U.S. tax laws have stringent requirements regarding Irrevocable Trusts, making them inaccessible by the Grantor after their creation, otherwise their tax benefits may be nullified. Irrevocable trusts are ideal vehicles when coupled to a specific purpose, such as a repository for insurance policies removing them from the estate of the insured, or present value gifts to charities.
Gifting Program
One way to reduce your estate taxes is to minimize the amount that is in your estate. This sounds simple enough, but how can your plan be developed to accomplish this objective? The government allows individuals to give a gift of up to $10,000 to whomever they see fit. By doing so, you can remove assets from your estate. The annual gift tax exclusion allows this amount to be given away without any gift tax. Married couples together can provide gifts of up to $20,000 to each donee.
In the following example, you will be able to see the enormous advantage of gifting money to your loved ones today, and removing it from your estate instead of waiting until you pass away. Dr. and Mrs. Jones, with an estate value of $3 million, began an annual gift-giving program of $20,000 to each of their three children and four grandchildren. Four years later, they had successfully removed $700,000 from their estate and simultaneously reduced their estate tax burden (after their standard $675,000 exemptions) from $1,175,000 to $774,000 -- a savings of more than 35 percent.
Given such factors as asset appreciation and income, the savings are potentially far greater, making the annual gift tax exclusion one of the more common and popular strategies for reducing estate tax liability.
The Living Will
Thinking about and discussing terminal illness and incapacity is never a simple or pleasant task. However, your failure to provide your loved ones with guidance and direction now, while you are able, may cause them to second guess what you would have wanted done. Deciding how you want to be cared for in the event of serious illness or incapacity is an extraordinarily difficult and emotional decision. It is, therefore, essential to formally communicate your desires through the creation of a living will.
A living will is one of the most important documents you will ever sign. Even if your family does know your feelings and desires, without a living will, they may face many difficulties, if not the impossibility, of carrying out your wishes without the legal authority to do so. As a result, health professionals, courts or others may, in spite of trying to ascertain and fulfill your wishes, take steps that are the opposite of your intended desires.
How Can All This Help?
A well-crafted estate plan will allow you to communicate your wishes and desires, protect your family, transfer your assets and minimize your estate taxes and probate costs. Planning now is the most thoughtful gift you can provide to your survivors, ensuring that they are secure -- financially and otherwise -- in your absence.
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