Estate Preparation

by David Carnes
An improperly drafted will might be thrown out of court.

An improperly drafted will might be thrown out of court.

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Your estate includes the property you leave behind when you die. Generally, this property is distributed according to your will. If you leave no valid will, your property will be distributed according to state law. Appropriate estate planning can yield many benefits, including minimizing your estate's tax burden and avoiding probate.

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Dying Without an Estate Plan

If you die without a will or other type of estate plan, the probate court will distribute your property according to state intestate succession law. Although these laws vary among states, your surviving spouse typically receives at least 50 percent of your estate and your other relatives take shares based on their blood relationship to you--most often your children receive the rest of your estate, but if you have no surviving spouse or children, other relatives may inherit as well. The state government takes your estate if you die without living relatives.

Taking Inventory

The first step in creating an estate plan is to determine what you actually own. Your property includes real estate as well as personal property, such as furniture, cars and bank accounts. It also includes intangible property, such as patents, copyrights and corporate stock. Your life insurance policy is not part of your estate, and retirement benefits paid to a beneficiary probably aren't either. Before writing your will, create a written inventory of your estate property. You should write a will even if you don't own significant assets, because you might gain assets before you die.

Writing a Will

Your will must conform to state law or it will be declared invalid. Although state laws vary, all states require your will to clearly state its purpose of distributing your estate assets after you die. It should provide clear instructions and clearly identify your heirs. You typically cannot disinherit your spouse. You must sign and date your will in the presence of two or three witnesses, depending on state law.

Estate Taxes

The IRS and about half of the state governments impose estate taxes. Although they don't apply to your spouse's share of your estate, your other heirs can only share whatever is left after taxes. In 2011, federal estate tax applied only to estates worth more than $5 million, although the highest tax rate was 35 percent. State taxes vary considerably. You can lower the value of your taxable estate by giving gifts to your heirs before you die -- you can give up to $13,000 per year without paying gift tax. You might also buy a life insurance policy that pays an amount equal to your expected estate taxes.

Living Trusts

The probate process can take years, and your heirs may not be willing to wait that long to take their share of your estate. One way to avoid the probate process is to establish a trust that takes effect before you die. Under a living trust, you place your property under the care of a trustee, who distributes trust assets to beneficiaries you choose according to the terms of a written trust instrument. After you die, any assets titled in the name of the trust are not subject to probate. Your trustee is free to distribute these assets as soon as the trust instrument authorizes him to do so.