Most
people go through the estate analysis process to help ensure
their assets are distributed to family, friends and/or charities
according to their wishes. While many will think of this distribution
taking place after a person's death, making gifts of money
or property during one's lifetime is also a sound estate analysis
strategy.
One
benefit of making lifetime gifts comes from the personal satisfaction
of seeing your gifts make a positive impact on those who receive
them. In addition, gifts made during one's lifetime may also
reduce estate taxes and administrative expenses, avoid probate,
shift future appreciation to the donee and provide greater
privacy since property left to others through a Will is part
of a public document.
Whether
gifts are made in one lump sum or annually, during one's lifetime
or after, the federal transfer tax system limits the amount
that can be given away without being taxed (covered in part
one of this two-part series). Yet, by using some effective
estate analysis techniques, you may be able to minimize or
eliminate your "gifts" to Uncle Sam.
"Love
all, trust a few." - William Shakespeare
Giving
assets away outright is one way to remove them from one's
estate. But for many, this may not be feasible or practical.
For example, if funds might be needed in the future or there
is a concern about the affect on a child from having too much
wealth at an early age, an individual should think twice before
gifting. However, even these concerns may be addressed through
the use of one or more different types of trusts.
In
many cases, the best way to help ensure one's assets will
be managed and distributed according to his or her wishes
is by establishing a trust. The benefits will depend upon
the type and provisions of the trust used. Although too numerous
to name them all, some benefits may include:
reduced
time and legal fees for survivors,
assets
avoid the probate process,
reduction
or elimination of estate taxes,
ability
to name a guardian for minor children, and
ability
to specify when and how many assets the beneficiaries can
access.
In
simple terms, a trust is a legal arrangement between three
parties: trustee, grantor and beneficiary. The trustee is
the person or institution that is responsible for managing
the property in the trust and making sure it is used only
in a manner according to the grantor's wishes. The grantor
is the one who gives the property to the trust for the benefit
of another. The beneficiary is the person(s) chosen by the
grantor to benefit from the property in the trust.
There
are two main types of trusts. A living trust is established
while the individual is alive whereas a testamentary trust
is established in a will and takes effect upon death. A living
trust also can come in two different forms: revocable, which
allows
the grantor to make changes or terminate it at any time, or
irrevocable which may not be changed, terminated or have
