Samantha Hicks

You've worked hard all your life and have accumulated property and items that you want your heirs to enjoy. But do you know what will happen to your property after you die?

The bad news is that your estate could be eroded by estate taxes. Depending on the size of your estate, federal estate taxes could exceed 55 percent. The good news is that the exempt amount of an estate increases each year until 2006. For example, by 2006, only estates valued at more than $1 million will be subject to federal estate taxes. In 2006, a married couple will be able to leave up to $2 million to their heirs tax-free.

Do you know if your estate will go through probate? Subjecting your estate to probate-the legal process through which the court ensures that upon your death, your debts are paid and your property is distributed according to your will-may mean additional costs and delays in transferring your assets to your heirs.

Estate planning has three basic goals:

(1) to minimize estate expenses and taxes;

(2) to make plans in advance for meeting the expenses so that your estate is not forced to liquidate assets in a "distress" sale environment; and

(3) to orderly distribute the remaining assets to your heirs according to your wishes.

Many people rely on wills as the best way to plan for the distribution of their estate. A will does not avoid probate. And, should you become disabled, it provides no protection for you or your heirs.

Fortunately, we do not have to rely only on wills and the probate process to settle our estates. Alternative strategies to consider include credit-shelter trusts, gifting, irrevocable life insurance trusts, family limited partnerships, limited liability companies, charitable trusts and other strategies that may be deemed appropriate for your circumstances. During your estate planning process, use a team of professionals including accountants, attorneys and investment advisors.

The remainder of this article will discuss the general characteristics of the living trust. If you establish a trust during your lifetime, it is called a "living trust." Under this arrangement, you transfer your assets from your individual name to the name of the trust. The trust owns the assets, which you control. Upon your death, the assets are transferred to the heirs. Remember that trust assets may be subject to estate taxes depending on the size of the estate.

There is not a probate process with a living trust. Beneficiaries can begin living off income from the trust without having to wait for a probate court to settle the will. The probate court proceedings and court delays are eliminated. Your privacy is preserved, and the emotional stress on your family is minimized.

The person who established the trust can appoint himself or herself as trustee. However, if your estate is large, has a variety of assets or requires tax planning, consider having a professional trustee involved.

Also, carefully consider the selection of a successor trustee or co-trustee. If you and your spouse are co-trustees, either can act and instantly take control if one becomes disabled or dies. The successor trustee looks after your care and manages your financial affairs for as long as necessary, using your assets to pay your expenses.

To establish a living trust, you should take an inventory of your property and decide on beneficiaries. Select a successor trustee and name a trustee and guardian for minor children. An attorney prepares the actual legal document that addresses your specific needs. After the trust document is signed and notarized, change property titles to reflect the name of your trust. Change the beneficiary designations on the appropriate assets.

The material in this article is not intended as legal or tax advice, and does not replace the advice of a qualified attorney, tax advisor, financial advisor or insurance agent. Many states have their own estate tax rules. Before making any financial commitment regarding the issues here, consult the appropriate professional advisor.

Samantha Hicks, past president of the Upper Puget Sound Farm Forestry Association, is a financial consultant for LPL Financial Services in Everett, Wash.

This article appeared in the Northwest Woodlands Magazine, Summer 2000- Published quarterly by the World Forestry Center as a benefit of membership in the Oregon Small Woodlands Association, Washington Farm Forestry Association, Idaho Forest Owners Association and Montana Forest Owners Association.