Do you know what will happen to your estate after you die? Who will get what? How much will you have to pay to Uncle Sam? How much does your family actually get to keep?

Some of you may be surprised to learn that you can lose up to 40% of your estate right off the top due to taxes and probate costs. And, if you do not have enough liquidity, your property can be sold (often at less than fair market value) to make cash available to pay for the estate tax and probate fees. Then after this money is deducted, who will get your assets and when? If you do not plan now, you will not have any control and bad results may follow. For example, a court may give millions of dollars of your estate to your young child who may not be able to manage large sums of money. He/she may then end up losing huge amounts due to carelessness, ignorance, poor management, or wrong advice.

Estate planning is not just for "wealthy" or "old" people. It's something everyone needs to do regardless of your age, marital status, or wealth to keep control of your assets after you die. Even if you already have a Will, your estate planning may not be complete! If all you've done was create a Will, it's time for a change. Why? Because a Will does not avoid probate.

Estate planning is generally used to preserve our estates by reducing taxes and avoiding probate. However, because the assets and value of your estate continually changes, an estate plan is always evolving. Thus, estate planning is not just a one time issue. You should review your estate plan every two or three years, sooner if there has been a significant personal event such as birth, death, marriage, divorce or inheritance or when there is a change in the U.S. tax laws concerning estate and gift tax.

Your estate plan can consist of many individual documents. The more typical estate plan consist of: (1) "living" trust, (2) pour over will, (3) power of attorney for health, and (4) life insurance trust.

Through estate planning, you can:

• Determine:
• who will get what;
• how they get it; and
• when they get it;
• Minimize Federal Estate Taxes; and

Reduce or Eliminate Probate Costs.

After death, how does your estate transfer to your loved ones? There are three ways: probate, operation of law, and Trusts.

Probate. Probate is the legal process of distributing your property to your survivors after your death. If you have no Will, probate will allow the courts to distribute your estate by statute. If you have a Will, probate will execute the instructions of your Will. The problem with going through the probate process is that it can be very expensive because you will not only have to pay a fixed statutory rate in probate fees (for court costs, attorney fees, and executor fees), but you will likely end up paying more Federal Estate Taxes than you actually need to. All this added together could mean that you may lose 40% or more of your estate before your family even gets one penny!

Operation of Law. The law allows certain types of assets and properties to pass directly to your survivors outside of the probate process. Assets and properties held in joint tenancy or having beneficiaries bypass the Will and go directly to the designated survivor. Examples of such assets are a married couple's home, life insurance, annuities, and retirement plans (IRA's, TSA's, and 401(k)'s). The problem with passing your assets by operation of law is that you do not avoid probate -- you just delay it. When the joint tenant or beneficiary dies, the property will then be subject to probate and a likely higher Federal Estate Tax rate.

Trusts. A Trust is a fiduciary arrangement established when one party (grantor or settlor) gives up the ownership of certain assets and transfers control of the assets to a second party (trustee) who administers the assets for the benefit of a third party (beneficiary). A Trust has a fixed life and once it expires, the assets in the Trust pass on to the beneficiary. There are many different types of trusts. For estate planning purposes, the most important type of Trust is the Revocable Living Trust. The benefits of setting up a Revocable Living Trust is that it avoids the costs and time delays of probate and can assist in minimizing your Federal Estate Taxes and even your Capital Gains Tax.

• What is Estate Planning? -- Managing and distributing your assets while you are alive to best benefit your loved ones upon your death.
• Why Do You Need Estate Planning?
• To be able to choose who you want to leave your assets to, under what circumstances, and in what amounts. You need at least a Will to be sure your assets are left to individuals you choose.
• California intestate laws governs if no Will.
• With a Will or Living Trust, you can give to whomever you want.
• To save on Probate Fees, which consists of attorney fees and executor fees
• Probate fees are charged based on the gross value of the estate.
• Estates of $60,000 or less only require short form probate.
• Estates of greater than $60,000 require probate unless all property is held as joint tenants. Property under joint tenancy passes automatically to survivor.
• Property held in Living Trust does not require probate.
• To save on Federal Estate Taxes
• The Federal Estate Tax is charged based on the net value of the estate.
• If your net estate is within the exclusion amount, you do not have to pay a Federal Estate Tax. The exclusion amount changes almost every year from $625,000 in 1998 up to $1 million by the year 2006. The amounts are set forth in the following Table.
• To keep your net worth and distribution private.
• Methods of Estate Planning
• Will
• Living Trust
• Insurance Trust: Insurance money not considered in estate.
• Generation Skipping Trust: Families with net worths of $5 million or more should consider.
• Charitable Remainder Trusts: Families with net worths of $5 million or more should consider.
• Qualified Domestic Trust: Must use this for tax savings when a spouse is not a U.S. Citizen.
• Family Limited Partnership.
• Homeowners Exemption: At age 55.
• $10,000 per person per year Gift Tax free.
• Other Considerations
• Durable Power of Attorney for health.
• Appointment of Conservator (with specific powers).
• Appointment of Guardian (with specific powers).
• $10,000 per year per person gifted into Trust or outright.
• Personal Considerations Your Estate Plan Should Incorporate
• Should your kids have access to money before your death?
• Do you want to set aside money for your grandchildren?
• What's more important -- Control over your assets now or preserving your assets for your loved ones after you die?
• Are there children of a prior marriage to consider?
• Balance your current financial needs with intent to pass money to your children.
• Protect your estate from outside risks.
• lawsuits -- asset protection procedures
• insurance against negligence suits
• prenuptial agreements/divorce
• Conclusion -- It is never too early to plan how to take care and provide for your loved ones upon your death.