Wills, living trusts: estate planning imperatives
Well-crafted, up-to-date estate planning documents are an imperative for everyone. They also can help ease the burdens on the family during a difficult time. Two important examples: wills and living trusts.
The will
A will is a legal document that arranges for the distribution of property after a person dies and allows them to designate a guardian for minor children or other dependents. It should name the executor or personal representative who'll be responsible for overseeing the estate as it goes through probate. (Probate is the court-supervised process of paying any debts and taxes and distributing the property after a person dies.) To be valid, a will must meet the legal requirements in your state.
If someone dies without a will (that is, "intestate"), the state will appoint an administrator to determine how to distribute the property based on state law. The administrator also will decide who will assume guardianship of any minor children or other dependents. Bottom line? A person's assets may be distributed -- and their dependents provided for -- in ways that differ from what the person would have wanted.
The living trust
Because probate can be time-consuming, expensive and public, a person may prefer to avoid it. A living trust can help. "It's a legal entity to which you, as the grantor, transfer title to your property. During your life, you can act as the trustee, maintaining control over the property in the trust. On your death, the person (such as a family member or adviser) or institution (such as a bank or trust company) you've named as the successor trustee distributes the trust assets to the beneficiaries you've named," states the press release.
Assets held in a living trust avoid probate -- with very limited exceptions. Another benefit is that the successor trustee can take over management of the trust assets should you become incapacitated.
Having a living trust doesn't eliminate the need for a will. For example, a person can't name a guardian for minor children or other dependents in a trust. However, a "pour over" will can direct that assets a person owns outside the living trust be transferred to it on their death.
Other documents
There are other documents that can complement a will and living trust. A "letter of instruction," for example, provides information that the family will need after ones death. "In it, you can express your desires for the memorial service, as well as the contact information for your employer, accountant and any other important advisors." (Note: It's not a legal document.)
Also consider powers of attorney. "A durable power of attorney for property allows you to appoint someone to act on your behalf on financial matters should you become incapacitated. A power of attorney for health care covers medical decisions and also takes effect if you become incapacitated. The person to whom you've transferred this power -- your health care agent -- can make medical decisions on your behalf."
Foundational elements
These are just a few of the foundational elements of a strong estate plan. Prince & Tuohey CPA Ltd. can work with individuals and their attorney to address the tax issues involved.
3 strategies for handling estimated tax payments
In today's economy, many individuals are self-employed. Others generate income from interest, rent or dividends. If these circumstances sound familiar, a person might be at risk of penalties if they don't pay enough tax during the year through estimated tax payments and withholding. Here are three strategies to help avoid underpayment penalties:
1. Know the minimum payment rules. "For you to avoid penalties, your estimated payments and withholding must equal at least: 90 percent of your tax liability for the year, 110 percent of your tax for the previous year or 100 percent of your tax for the previous year if your adjusted gross income for the previous year was $150,000 or less ($75,000 or less if married filing separately)."
2. Use the annualized income installment method. This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income -- especially if it's skewed toward year end. Annualizing calculates the tax due based on income, gains, losses and deductions through each "quarterly" estimated tax period.
3. Estimate the tax liability and increase withholding. "If, as year end approaches, you determine you've underpaid, consider having the tax shortfall withheld from your salary or year-end bonus by Dec. 31." Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may trigger penalties for earlier quarters.
Finally, "beware that you also could incur interest and penalties if you're subject to the additional 0.9 percent Medicare tax and it isn't withheld from your pay and you don't make sufficient estimated tax payments." Please contact Prince & Tuohey for help with this tricky tax task.
Prince & Tuohey CPA Ltd. is located at 2836 Malvern Ave. Suite D, Hot Springs, AR 71901. Call 501-262-5500 or visit website http://www.princetuohey.com for more information.
Business on 10/16/2017