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Why Estate Planning Should Be a Key Element in Your Retirement Preparation

If you’re retired or getting ready to retire, a sound financial plan must include an estate plan. It will give you peace of mind, help preserve your assets and could spare your loved ones administrative problems in the future.

Evaluate Your Needs

Your initial evaluation should include an estate analysis and a settlement cost analysis:

• An estate analysis includes an in-depth review of your present estate-settlement arrangements, seeking potential problems and providing direction for possible alternatives.

• A settlement cost analysis then summarizes the costs of various estate distribution arrangements.

A good estate plan can help determine the most advantageous means of owning family properties, provide debt repayment, educational expense and income to your survivors, and minimize estate and income taxes.

Important Information

Estate plans can be a complicated assignment and include multiple elements, such as a will, living trust, power of attorney, health-care proxy and, sometimes, a trust. There are a few important things to focus on when handling estate planning:

• Estate Tax Exemption. Thanks to recent legislation, you can now leave bequests (gifts to other individuals upon your death) worth up to $1 million free of any federal estate tax. (For 2001, it was only $675,000.) If you are married, both you and your spouse are entitled to separate $1 million exemptions. The current $1 million figure is scheduled to increase over the next several years to $1.5 million in 2004, $2 million in 2006 and $3.5 million in 2009.

• Two Part Marital Estate Plan. If you are married and together you have assets worth more than $1 million, this type of plan reduces federal estate taxes by taking maximum advantage of both the unlimited marital deduction and the $1 million federal estate tax exclusion amount. Under this type of plan, a portion of the estate passes into a “family” or “bypass” trust, which typically provides lifetime income for the surviving spouse, with eventual distribution to the children.

• The Gift Tax Exemption. You don’t have to wait until you die to give away money tax-free. Instead of using your exclusion amount at your death, you may elect to give away a cumulative total of up to $1 million to relatives, friends and anyone else you wish at any time during your life without owing any federal gift tax. (For 2001, it was only $675,000.) If you are married, both you and your spouse are entitled to separate $1 million gift-tax exemptions.
  
  This reduces your taxable estate, and shifts the taxable income from the gifted assets to the recipient, who may be taxed at a lower rate than you are.

Seek Professional Advice

Estate planning often entails many facets of your personal finances, requiring the coordinated efforts of qualified legal, tax, insurance and financial professionals. It may require periodic review to ensure that plans are aligned with your changing goals.

October 17, 2002

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