In our previous post, we began looking at a list of estate planning issues which were suggested as important for women to understand. We present them as important for anybody to understand.
The next item on the list is ensuring adequate reserve funds. When one spouse dies, it is likely that the other will not have access to that account immediately. Having reserve funds of some sort allows one spouse to take care of immediate expenses if the other suddenly passes away. One good option in this regard is joint ownership. In terms of bank and brokerage accounts, couples often choose joint tenancy with rights of survivorship, which allows both spouse's to have access during life, and at the death of one spouse, the remaining spouse becomes the sole owner. The potential disadvantages of this form of ownership is that is exposes each owner-spouse to potential liabilities.
It is important for each spouse to be of key deadlines when a spouse dies. Portability is one such deadline. Portability allows a surviving spouse to add any of their spouse's unused tax exclusion to their own tax exclusion. During 2011 and 2012, that amount is $5 million per person. To get portability, the executor of the first spouse's estate must file an estate tax return within 9 months of the spouse's death, even if no estate tax return is required.
Spouse's also have nine months within which they may disclaim any portion of their inheritance. Disclaiming inheritance allows it to go to children or other family members or into a trust. One technique that is sometimes used is to give the surviving spouse the right to disclaim part of the money and put it into a family or bypass trust.
The final item mentioned on the list is a tax dowry. What is referred to here is the ability to give up to $5 million away to a non-spousal heir, tax free. Spouses are also able to do gift-splitting, which allows them to give more to their children, tax free. It should be kept in mind, though, that any exclusion used now reduces the amount available at death. It should also be kept in mind that spouse's should consult an attorney before using up their exclusion amount for the benefit of a spouse's children from another marriage.
The issues mentioned in these posts are best discussed with an attorney, but it is helpful to have some basic knowledge of these things when thinking about ordering your estate.
Source: Forbes, "The Shrinking Violets Of Estate Planning," Deborah Jacobs, Sept 8, 2011.