Most visitors to our web site come with many questions and we are confident you will find some answers here. Look them over and if need be, give us a call for more thorough explanations.

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• Q. What is estate planning?

  • A. Estate planning is the process of preparing a systematic strategy for the best possible use of your assets during your lifetime (financial planning) and then transferring those assets after you pass away (estate planning). This process must take into consideration your current financial plan, your future needs and your estate plan.

• Q. What is my estate?

  • A. Your estate is everything you own - your home, real estate, personal possessions, bank accounts, stocks, bonds, business interests, life insurance, IRAs, retirement plans, and other financial interests.

• Q. I have a will. Do I have an estate plan?

  • A. Planning usually includes a will, but it is rarely as simple as just having a will. Many people make the mistake of thinking that if they have a will, they have an estate plan. This is rarely the case and frequently leads to significant estate planning problems.

    The most important consideration in estate planning is identifying and achieving your goals, both during your lifetime and after you pass away. Estate planning also includes smart tax planning since estate taxes (both state and federal) can significantly cut into the wealth you want to leave to your beneficiaries. The state and federal government try to levy the highest possible estate taxes. So, before you pass away, you should take measures to keep your estate tax bill as low as possible.

• Q. What are estate taxes?

  • A. The federal government and the states reserve the right to tax assets owned by people when they die, before their heirs are permitted to enjoy those assets. While rates vary from state to state, some states do not have such taxes. The federal government imposes tax on estates greater than $3,500,000 that do not pass directly to the person's spouse.

• Q. What is the current federal estate tax exemption?

  • YEAR	ESTATE EXEMPTION	HIGHEST TAX RATE
    2009	$3,500,000	45%
    2010	Unlimited	0
    2011	$1,000,000	55%

    Note: This table reflects the current law under The Economic Growth and Tax Relief Reconciliation Act of 2001. The estate tax is scheduled to be repealed in 2010, but under current law returns in 2011 with the exemption amount reinstated at $1 Million dollars, with highest tax rate at 55%. It is anticipated that this law will be changed before it becomes fully effective.

• Q. How much are federal estate taxes?

  • A. The federal estate tax rate is 45% in 2009. Here are some federal estate tax bills after allowances, deductions and the exemption have been taken:

    Estate Value	Subtract exemption (Example: Yr. 2009)	Taxable Estate	Federal Estate Tax
    $4,000,000	($3,500,000)	$500,000	$225,000
    $5,000,000	($3,500,000)	$1,500,000	$675,000
    $8,000,000	($3,500,000)	$4,500,000	$2,025,000

    Planning ahead and making use of tax-reducing strategies, such as including tax-planning provisions in a Living Trust will allow a married couple to fully utilize two federal estate tax exemptions. This will increase the amount of the estate that can pass tax-free to beneficiaries to $7,000,000 in 2009. This type of planning for many people can result in reduced estate taxes or complete elimination of estate taxes.

• Q. Who pays estate taxes?

  • A. The executor or the administrator of an estate pays estate taxes before the heirs receive their money. There is one major exception: a U.S. citizen can leave all assets to his or her spouse without having to pay federal estate taxes by using the unlimited marital deduction. If your estate is sizeable, leaving it to your spouse can create even larger estate problems when your spouse dies.

• Q. How are Estate taxes paid?

  • A. Nine months after a person dies, estate taxes are due. Your executor could be forced to auction a family heirloom, part with stocks you wanted to keep in the family, liquidate business assets, sell property at a reduced price, expend cash needed for liquidity, or borrow money to pay estate taxes. This can be avoided if you decide where the money will come from before you pass away. Some people pre-fund estate taxes by establishing a trust account. Such a trust may hold various assets, such as a life insurance policy that will provide cash when it's needed - when you pass away.

• Q. Can I leave my estate to my children or grandchildren?

  • A. If your estate is left to anyone other than your spouse, an amount equal to the federal estate tax credit can be passed at death free of federal estate taxes, as long as you have not used this credit during your lifetime. Once you exceed this amount, your estate would be subject to federal estate taxes before passing the property to your heirs. In addition, your grandchildren could be subject to a generation skipping tax.

• Q. Can I give away assets during my lifetime?

  • A. Giving away some assets while you are living can be a good idea for some people. But first and foremost, make sure your needs are met before giving assets away. If you give assets away, keep some important rules in mind. You and your spouse may give $13,000* per year to each child or grandchild with no federal gift tax consequences. Together, you could give one $26,000 gift per year to each child or grandchild and pay no gift tax. This amount would not count against your lifetime $1,000,000 gift credit. Giving amounts larger than $13,000 would count against your tax credit.

    * The dollar amount that you may give as a tax-free gift is now tied to inflation and may increase every few years.

• Q. Can I give money to charity?

  • A. Yes... In addition to helping a charity, you can gain valuable income tax deductions by giving to charity. In fact, if you implement the proper estate plan using special trusts, you may be able to give money to charity, provide money for your children and come out ahead on both your income tax bill and your estate tax bill.

• Q. How do I set up an estate plan?

  • Can I do my own plan?

    Estate planning can become very complex and is not a job for amateurs. If you have more than $600,000 in assets, or are likely to accumulate more than $600,000 during your lifetime, experts should certainly do your estate planning. There are many states where smaller estates still need specialized planning due to state taxes. There are other situations, such as second marriage, out of state property, special needs for beneficiaries, professional asset management, and many others that can cause even a very small estate to benefit from good planning. You'll want to consult with someone who specializes in this field. Estate planning can require the services of an attorney, accountant, insurance professional and/or banker as well as you and any family members you want involved. Estate planning documents can include wills, living or testamentary trusts, powers of attorney, health care directives, nomination of conservator, appointment of guardian and specialized trust documents to reduce tax liabilities. NOT A DO IT YOURSELF JOB!

    What steps should I take?

    1. Gather the information and documents necessary to properly prepare a plan such as wills, trusts, insurance policies, tax returns and other financial data. Discuss and write down the objectives that you want to see fulfilled after your death. (Who is to receive the family heirlooms? Are there children in your family that have special needs? Do you want assets to be held in trust for your grandchildren's education? Do you desire to leave assets to charitable organizations?)
    2. Seek professional analysis of your information so that a strategy can be developed and a plan can be drafted.
    3. Implement the plan with the guidance of your estate planner and estate planning team.
    4. Review your plan every year and make changes when necessary

    How do I get started?

    Start with a professional or organization that has the knowledge and ability to work with allied professionals to develop and implement your plan. Southern Financial Services brings together a staff of qualified professionals with legal, tax, accounting, insurance, financial and estate planning experience. They are familiar with the legal and financial issues involved in estate planning and can help you to develop and implement your plan.

• Q. Can you do a trust by yourself?

  • A. Yes, it is legal for you to prepare your own Trust. Is it advisable? No! Preparing your own Trust documents can be disastrous. It is unlikely that you would know what provisions should be included in your specific Trust, unless you have knowledge and experience in the estate planning field. A common misconception about Living Trusts is that they are all essentially the same. Nothing could be further from the truth. A Living Trust should be drafted and tailored to fit the specific needs of your estate and family situation. It should contain the terms and provisions that are appropriate for and applicable to you. Frequently, the terms and provisions used in someone else's Trust would be inappropriate for inclusion in your Trust document. Preprinted, boilerplate or do-it-yourself Trust forms assume that all people's needs are basically the same. Your documents should be created to fit your specific needs.

• Q. Can you settle an estate by yourself?

  • A. If you are the executor of an estate, you can settle the estate without hiring an attorney, according to law. If you are the surviving spouse, settling your deceased spouse's estate will not generally create large problems unless the estate is of significant size or assets are being distributed to beneficiaries other than the surviving spouse. However, if you are the executor of an estate for someone other than a spouse, the estate settlement process will get much more complex. Additionally, you will find resistance on the part of the courts to allow you to settle the estate without the involvement of an attorney. To settle an estate, you will be required to know the court procedures and forms that are going to be required in the administration and settlement process. Most people do not have the information readily available. Accordingly, most courts will insist on retaining an attorney for the estate settlement process.

• Q. How do you know who to trust in preparing your Trust documents?

  • A. Selecting an organization or person to prepare your Trust documents is not a difficult process. It is not always a black or white process. You should look for a firm or individual who is knowledgeable and experienced in the field of estate planning and preparing Trust documents. Typically this will come from years of experience and/or professional training. The attorney who actually prepares documents may work with an experienced estate planner who will do the actual design and requirements of the estate planning documents. This individual (or organization) is the most critical individual in the process. Your estate plan must be designed to include the terms and provisions applicable to you. It should also be designed in such a way that does not include unnecessary administrative requirements for the Trustees. Most good estate planning organizations bring together a combination of professionals to build an estate plan to get the maximum possible benefits for the client. These planning professionals may include: an attorney, a certified financial planner, a certified public accountant, and a knowledgeable experienced estate planner.

• Q. Does the creation of a Trust alleviate the need for a Will?

  • A. A Living Trust will do what your Will does now. It outlines when, where and how your estate is to be distributed and the beneficiaries who are to receive the estate. In this context the Trust replaces your existing Will. However, most good estate planners will also prepare what is called a "Pour-Over" Will. This type of Will serves two purposes. It will catch any assets that are outside the Trust at the time of death and place them into the Trust or "Pour-Over" those assets into the Trust. Secondly, it provides a document that can be filed with the local probate court that outlines the existence of a Trust and the fact that the estate is being distributed through the Trust. As a result of this abbreviated information that is provided to the probate court, none of the terms, information, or assets controlled by the Trust are disclosed in the probate process.

• Q. How long have Trusts been in existence?

  • A. The use of Living Trusts dates back to the 1500's in Europe. The first recorded use of a Trust in the United States dates back to 1762 and was drafted in Virginia by an attorney named Patrick Henry.

• Q. Is a Living Trust Recorded?

  • A. Not generally. One of the key objectives in creating a Living Trust is to maintain privacy. Any document recorded in a local courthouse is available for public inspection in the recorded records of the courthouse. Additionally, since a Living Trust is emendable, regardless of what the document that was recorded said, the Trustor would be able to amend or revise the document at some time after the recording occurred. If there is some requirement that would necessitate the recording of information about the existence of a Trust, the attorney who prepared the Trust document will generally prepare an Affidavit of the Facts or Memorandum of Trust. This document will disclose the name of the Trust, date of the Trust, Trustors and Trustees and certain specific tax and accounting information relative to the Trust. This information can be recorded without disclosing all of the specific details of the Trust, namely, the beneficiaries and assets contained within the Trust.

• Q. Can a Trust be overturned?

  • A. It is extremely difficult, if not impossible, to challenge or overturn a Trust. The only instances where a Trust is overturned usually stem from a situation where the Trust was not a valid Trust from inception or where the creator of the Trust did not possess the full mental capacity to create such a document. Creation of a Trust would require the creator be of legal age and sound mind at the time the Trust was created. This is the same legal requirement that would have to be met to create a valid Will.

• Q. What can cause a Trust to be invalid?

  • A. A Trust can be declared invalid if it is not funded, or it contains terms or provisions that violate law or are against public policy. A Trust can also be invalid because it does not contain required administrative or text provisions under the laws of the state in which the Trust was created or is being administered.

• Q. What are the disadvantages of a Trust?

  • A. If a Trust is the appropriate estate-planning vehicle for you, there are really very few disadvantages. Some people will say that the cost of setting up a Trust is higher than the cost of doing a Will. This is a true statement. However, if you consider that using a Will has also committed you to using probate for settling the estate, using a Living Trust instead of using a Will generally results in a far more cost effective outcome for most people. When you use a Trust, in some instances, creditors may not be cut off as quickly as they might otherwise be during the probate process. To cut off potential creditors, you must follow the procedures of probate and advertising an estate in the newspaper. For many people, this is part of the public disclosure process that they are trying to avoid. When you set up a Trust, there can be costs associated with transferring various assets into the Trust. Should you decide to revoke the Trust at a later date, the entire process of transferring assets into the Trust must then be reversed. Generally speaking, there are very few reasons not to do a Living Trust.

• Q. What if they outlaw Trusts?

  • A. It is virtually inconceivable that Trust would be outlawed or abolished. Trusts date back in history to the fifteen hundreds. They have been part of the estate planning and settlement process in this Country since the United States was founded. Large numbers of lawmakers and politicians utilize trust for their individual estate planning purposes. Should there ever be substantial changes in Trust law, it is most likely that existing Trusts would be grandfathered under the laws that were in existence at the time they were created.

• Q. Should you notify the members of your family of the existence of a Trust?

  • A. This is a question that each individual must answer for himself/herself. There are some cases where the family members are Trustees of the Trust and it would be extremely important for members of the family (because of their potential duties as Successor Trustees) to be aware of the fact that a Trust did exist. Whether you choose to furnish a copy of your Trust to the Successor Trustee is a matter of personal choice. In some other situations, where family members are not Trustees of the Trust, you may elect not to advise them of the existence of the Trust. Perhaps the most critical issue is to make sure that the Successor Trustee is aware of the existence of the Trust and the circumstances under which they would become Trustee. On the occurrence of such events, they should know when, where and how to gain access to the Trust document should they not have one in their possession.

• Q. What is the difference in a Testamentary Trust and a Living Trust?

  • A. A Testamentary Trust is a type of Trust that is created by your Will. Since your Will creates this type of Trust, this type of Trust does not exist until after your death. Also, the assets placed in a Testamentary Trust must first go through probate before becoming a part of the Trust. On the other hand, a Living Trust is a type of Trust that is created during your lifetime. It is a Trust while you are alive, and is funded and fully operational during your lifetime.

• Q. How many parties are required to enter into a Trust?

  • A. Three is the minimum number required. To create a valid Trust, you must name the Trustor (the creator of the Trust), the Trustee (the manager of the Trust), and the Beneficiary (the person that will receive the income or principal from the Trust). Generally, you will also name the Successor Trustee and a Contingent or Secondary Beneficiary.

• Q. Can a Living Trust continue after my death?

  • A. Yes. A Living Trust can continue long after you have passed away. You will decide when you create your Trust whether the Trust will terminate or continue after you pass away. When, where, and how you wish to have your estate distributed may have a great bearing on whether the Trust continues or terminates. There are many considerations that should be evaluated for each individual in making the final determination as to whether a Trust should continue or terminate.