Trading is all about today: the moves you make, the strategy you follow, the gains and losses at the bell.
But what about tomorrow? How will the wealth you're creating today benefit your loved ones when you've logged off the big board for the last time?
Today, more than 70% of American families fail to properly plan for the optimal control, management and transfer of their estates. Without proper planning, your estate could wind up in probate court, which can prove a costly, time-consuming and psychologically damaging process for any grieving family to endure.
Consider the cost: A 4% probate fee on a $400,000 estate amounts to a whopping $16,000. And the delay: The probate process can take anywhere from four months to four years or more, prolonging a family's suffering. And because probate is a matter of public record, your family would forfeit their privacy at the very moment they need it most.
In fact, without proper planning, if you become incapacitated, your estate could become subject to probate before your death through a process known as conservatorship. Court-mandated conservatorship can not only be expensive, your estate could be placed in the hands of a complete stranger.
Assets are not the only thing at risk in probate. Oftentimes, our children may suffer needlessly if control of our estate falls under the discretion of a probate court.
For example, without proper planning:
Should you and your spouse die when your children are minors, a probate court will select their guardian, as well as a custodian for your estate.
A spendthrift heir may be awarded a lump-sum payment that they might squander unless you make arrangements for them to receive only income from your estate.
Perhaps scariest of all, you might even unintentionally disinherit your own children from previous marriages without the proper planning.
How to avoid these worst-case scenarios?
A revocable living trust could be the answer.
This estate planning tool provides asset control, wealth preservation, cost and tax savings and privacy for you and your loved ones. You create a living trust with a binding agreement between you as trustor and a trustee, which in most cases will be you as well. You then transfer the title of your assets into the trust with specific instructions on how they are to be disbursed upon your demise.
Typically, a living trust also will include a secondary trustee (i.e., a bank, financial institution, or someone you trust) and perhaps a disability trustee in the event you become incapacitated. True to its name, your revocable living trust may be revoked by you at any time. The assets within the trust remain solely in your control during your lifetime. Upon your demise, the trust becomes irrevocable; that is, it cannot be withdrawn or changed. Your trustee (or secondary trustee if you've named yourself as trustee) then distributes the trust assets per your specifications after paying all final bills, debts and taxes. Since upon your passing the assets placed in the trust will no longer be owned by you, there is no need for them to be probated.
In addition to its many estate planning benefits, a revocable living trust can carry your guidance and wishes forward for the next generation. Thoughtful planning within the living trust can protect your heirs from financial setbacks due to divorce or impending bankruptcy, provide specific help for college tuition or first home buying, protect minors with age-specific disbursements, and benefit special needs children without endangering their Social Security benefits.
Finally, a living trust eliminates the need to place homes and other assets in joint tenancy with right to survivorship (JTWOS) agreements with children or other family members as a tax-saving strategy. JTWOS can be risky and often create unintended consequences; for instance, a parent who is in joint tenancy with a child could lose the house if the child is sued.
Traders Accounting, America's trader tax experts, helps traders plan for the future every day using a variety of estate planning tools. For more information about tax-saving estate planning for traders, please call Mike Nash at 800-938-9513
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