Planning your estate? Look beyond your will.

• Author: Vaccaro, Vincent D.
• Position: Personal Financial Planning - Column

Planning your estate? Look beyond your will

Did you know that as much as 80 percent to 90 percent of your property and assets may not be covered by your will? And, in fact, that making out a will is only a small part of estate planning?

If you are like most people, you and your spouse share joint ownership of most of your assets, which means that at the death of either one of you, these assets pass outside the will. And you have other large assets - life insurance, for example, or retirement benefits - that are controlled by the designation of a beneficiary and also pass outside the will. Because a will controls the distribution of only a small portion of your estate, the estate plan incorporated in the will may not be entirely effective. The result could be that you end up placing a substantial tax burden on your heirs.

The estate plan - what

to consider

You should begin your estate planning by exploring ways to minimize gift or estate taxes, which typically range from 37 percent to 55 percent. While there are no federal gift or estate taxes on transfers between spouses, transfers to non-spouses are taxable.

There are two provisions in the law that can help minimize federal gift and estate taxes. The first is the ability each individual has to give up to $10,000 to anyone each year free of gift taxes. A husband and wife, for example, can give $20,000 to each of their children each year free of gift taxes.

The second is the ability of each individual to transfer $600,000 of property during his or her lifetime or at death free of taxes. Any cumulative transfer over this amount would be subject to federal tax rates starting at 37 percent. Transfers, either during one's lifetime or at death, can be outright or in trust. So a married couple can pass $1,200,000 of property to their heirs free of federal gift or estate tax - if they have a proper estate plan.

Most individuals wish to pass all of their assets to their surviving spouse. By doing so, however, they lose the ability to pass $600,000 of assets tax-free to their heirs. An individual can retain this tax benefit by establishing a trust under the will to hold $600,000 for the benefit of the surviving spouse. Upon the surviving spouse's death, the assets of the trust pass to the trust beneficiaries free of estate tax.

In order to determine whether you have $600,000 available to be given outright or allocated to a trust under your will, you must inventory your estate assets. You must...