Estate Planning: Wealth Transfer Elements


 A Will is a document which directs the disposition of a person’s property at his or her death in accordance with his or her wishes. The provisions of a Will become effective upon the death of the individual who executed the Will (the “Testator”) and may be altered, amended or completely rewritten by the Testator until then. Property whose disposition is directed by the terms of a Will is called “probate property.” Probate of a Will is a court proceeding whereby the Will is validated and an Executor/Executrix is named. (If an individual dies without having a Will, he or she is considered to have died ”intestate” and state law will dictate what happens with his or her assets.) Once a Will is admitted to probate, it becomes part of the public record.

Revocable Living Trust

A revocable living trust is created when the grantor transfers property to a trustee (who may also be the grantor) but also reserves the right to alter or terminate the trust and reclaim the property. Because of this control over the trust assets, the grantor is considered still to own the assets for income and estate/gift tax purposes.

The assets contained in a revocable living trust may avoid the probate process. A revocable living trust may also allow for privacy, because the trust is a private

document unlike a Will. A revocable living trust may be professionally managed by an independent trustee in the event that the grantor becomes incapacitated (or at any other time if the grantor so provides).

Power of Attorney

A document by which one person (the principal) gives another person (the attorney-in-fact) legal authority to act on the principal’s behalf. The attorney-in-fact has the ability to act on the principal’s behalf with respect to any or all of the principal’s property, as specified in the power of attorney form. A power of attorney that remains in effect if the principal becomes incapacitated is called a durable power of attorney. If the power of attorney is not specifically a

durable power of attorney, it automatically expires if the principal becomes incapacitated or dies. Any power of attorney can be effective immediately upon execution or “spring” into effect at a specified future time or upon the occurrence of a specified event such as the principal’s incapacity or disability.

Living Will

A document by which an individual expresses his or her preferences regarding end-of-life issues such as medication, pain medicine, life support and resuscitation.


Health Care Power of Attorney or Proxy

A document by which an individual (the principal) grants another person (the agent) the authority to make health care decisions in the event the individual becomes unable to make such decisions for himself or herself (including decisions with respect to withholding or withdrawal of life-sustaining medical treatment and artificial nutrition and hydration).

Annual Exclusion Gifts

Annual exclusion amount: In 2010, taxpayers may make annual gifts of up to $13,000 per donee (indexed for inflation), with no limit on the number of donees or their relationship to the taxpayers. The gift must be of a “present interest in property,” which means an unrestricted right to the immediate use or enjoyment of the property (or income from the property). Gifts covered by the annual exclusion do not reduce a donor’s lifetime gift tax exclusion amount.

Gift-splitting: A spouse may elect to be treated as the donor of a gift although the other spouse is the sole transferor. (A husband and wife may elect to split gifts of a present interest in property worth up to $26,000 per donee) For gift-splitting to apply, the donor must file a federal gift tax return (Form 709) on which the non-gifting spouse consents to treat gifts as having been made by each spouse equally. Gift-splitting, if elected, applies to all gifts made during the year, and not on a gift-by-gift basis.

Tuition and Medical Expenses

Tuition and medical gifts: In addition to making annual exclusion gifts, amounts paid on behalf of an individual for tuition, training or medical care are not subject to gift tax. They are not considered to be gifts if the payments are made directly to the qualifying medical or educational provider. The tuition exception does not apply to amounts paid for room, board, books or supplies. The medical expense exclusion does not apply to amounts reimbursed by insurance.

Charitable Remainder Trust

A charitable remainder trust (CRT) is a tax-exempt trust that splits its benefit between (an) individual income beneficiary(ies) and a charitable remainder beneficiary.  The duration of the trust may be for the life or lives of the income beneficiary(ies) or for a term of years not to exceed 20. A CRT may be set up for one or more of the following reasons:

    • Diversification of assets to produce more income for the Donor
    • Avoidance or deferral of capital gains tax upon the sale of highly appreciated assets
    • Charitable deduction against federal income tax
    • To reduce the value of Donor’s estate
    • Donor would like to benefit a certain charity(ies) at death


  • There are two types of CRTs, a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT). The total yearly payment made to an income beneficiary from a CRAT is set when the CRAT is established, and no further contributions may be made to the CRAT after the initial contribution has been made. The total yearly payments made from a CRUT are recalculated annually based on the fair market value of the CRUT in that individual year. Additional contributions may be made to a CRUT after it is established.
  • The minimum payout from a CRT is 5% and the maximum payout from a CRT is 50%. There are further requirements to be considered.

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