FINANCIAL PLANNING FOR YOUR FAMILY ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 1- ESTATE PLANNING Wills and Living Trusts: ----------------------- WILLS- a- If you don't have a will for your estate, your state will gladly "create" one for you. I feel quite confident, that that is the last thing that you want to have happen, after spending your whole life building an estate. So, one of the most important steps in life that you can make is to have an up-to-date will. A will is needed to distribute your estate to whom ever you decide. b- Update your will periodically and especially when there are tax law changes or substantial additions to your assets. c- Ask the intended executor if they would actually want to be your executor (they may not want to) instead of simply naming them as executor. Also, if they accept, keep them informed. d- If you move to another state, have a new will prepared against the new states laws. If you don't, there is the real possibility that your will could be tossed out of court. e- Make bequests as percentages of your entire estate, rather than dollar amounts. The reason for this, is that your estate may reduce in value after you write a will and that specific dollar amounts could deplete your assets before all inheritors are provided for. f- Leave your will with your attorney or have your spouse keep it in a separate safe-deposit box. the reason is that if you keep your will in your own safe-deposit box, many states seal boxes upon the death of the owner and it can take months to have it opened. g- If you have frequent changes in your assets, you can write a letter of instruction noting your assets and the locations of them. You should file the letters of instruction separately and you should do the same with your burial instructions. h- Destroy your old will when you have a new one made. This will prevent your old will from possibly being used to contest your new will. i- Stay away from "do-it-yourself" wills. They can be disastrous. LIVING TRUSTS- a- As an alternative to a will, you can create a revocable "living trust". A revocable trust can be added to (assets) you can take property out of it, you can change beneficiaries or you can end the the trust, if you wish. A person who sets up a trust, retains complete control of the trust. b- You can designate yourself as the primary trustee and choose some other person as a co-trustee, in the event that you die or are incapacitated to the extent that you are not capable of control of your assets. c- A living trust may avoid certain probate costs such as, probate court costs, attorney fees, executor fees and other fees. d- Probate court can take years to settle and during the interim, heirs receive nothing of their inheritance until it is settled. e- You also may not realize that, probate proceedings are open to the public for their inspection. f- And remember this: it is not enough to just simply set up a, trust. You must transfer the assets that you want in the trust, in to the trust to make it effective. The use of an attorney, is highly recommended to set up a living trust. Estate and Gift Tax Exclusions: ------------------------------ a- You can give an annual gift of $1O,OOO per donee and not have to pay a gift tax. b- By way of a "unified gift and estate tax credit" you can exclude up to $6OO,OOO (estate) and an annual $1O,OOO (gift) and not have to pay gift or estate taxes. Shifting Income to children: --------------------------- a- A side-line business can make a nice tax-shelter. You can generate large paper losses, claim deductions for personal or hobby types of expenses and legally shift income to a lower tax bracket of your minor children. b- All investment income (as in a side-line business) of a child under the age of 14, in excess of $1OOO a year, is taxed at the rate paid by the child's parents. c- If you wish to set aside money for your children, one way would be to purchase U.S. Savings bonds that mature after the child has reached the age of 14 years. Filing for "Head of Household": ----------------------------- a- A single person may qualify for "head of household" status if you are paying more than 5O percent of the household and that, one or more of your relatives are living there. b- You are only required to maintain the household in which your parents live. c- Nursing home payments would be eligible. 2- DIVORCE AND SEPARATION Child support and alimony payments: ---------------------------------- a- Alimony payments, through a decree of divorce or a writ of separation, is usually deductible. b- Alimony payments received, is considered taxable income. Both can agree however, that payments otherwise considered as alimony will be nondeductible by the payer and nontaxable to the payee. This must be agreed upon in writing. c- Child support payments are not deductible. d- Child support payments received, are not considered as taxable income. Division of property or settlement in divorce: --------------------------------------------- a- Property that is being transferred between parties in a divorce or separation, is usually not considered a taxable situation. b- However, since the basis for such property is carried over, you should consider an attorney's advice before a transferral of any property under these situations. 3- CHILD CARE Credit for child care: --------------------- a- If you have a dependent or a child under the age of 15 who is incapable of caring for him or herself and also requires day care to allow you to continue employment, you are eligible for a tax credit of up to $72O for the first dependent and $1,44O for two or more dependents. b- The credit will be a percentage of your expenses, with your income being the basis for the adjustment. c- The credit will apply to expenses paid for employment-related circumstances such as, the expenses for people to care for your dependent(s), providing household chores (cleaning, cooking etc.)