Estate & Trust Tax Planning

At Copetti & Co we understand that estate planning is an essential part of wealth management. Our experience and professionalism is essential especially if your estate involves significant assets or complex issues. Proper estate planning can eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses. For business owners, providing for business continuity and succession of ownership is essential part of overall strategic planning.

Copetti & Co we will guide you through the complex process of getting your financial affairs in order and lend our expertise in the following areas:

• Business Succession Planning
• Trust and Estate Taxation
• Estate Plans
• Deceased Taxpayer Tax Filings
• Post Mortem Tax and Estate Planning

Estate planning is the process of anticipating and arranging, during a person's life, for the management and disposal of that person's estate during the person's life and at and after death, while minimizing gift, estate, generation skipping transfer, and income tax. Estate planning includes planning for incapacity as well as a process of reducing or eliminating uncertainties over the administration of a probate and maximizing the value of the estate by reducing taxes and other expenses. The ultimate goal of estate planning can be determined by the specific goals of the client, and may be as simple or complex as the client's needs dictate. Guardians are often designated for minor children and beneficiaries in incapacity.

The law of estate planning overlaps to some degree with elder law, which additionally includes other provisions such as long-term care.

Countries whose legal systems evolved from the British common law system, like Canada and the United States, typically use the probate system for distributing property at death. Probate is a process where:

• the decedent's purported will, if any, is entered in court,
• after hearing evidence from the representative of the estate, the court decides if the will is valid,
• a personal representative is appointed by the court as a fiduciary to gather and take control of the estate's assets,
• known and unknown creditors are notified (through direct notice or publication in the media) to file any claims against the estate,
• claims are paid out (if funds remain) in the order or priority governed by state statute,
• remaining funds are distributed to beneficiaries named in the will, or heirs (next-of-kin) if there is no will, and
• the probate judge closes out the estate.

Estate planning involves the will, trusts, beneficiary designations, powers of appointment, property ownership (joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), gift, and powers of attorney, specifically the durable financial power of attorney and the durable medical power of attorney. Estate planners often advise clients to also create a living will. Specific final arrangements, such as whether to be buried or cremated, are also often part of the documents. More sophisticated estate plans may even cover deferring or decreasing estate taxes or winding up a business.

Income, gift, and estate tax planning plays a significant role in choosing the structure and vehicles used to create an estate plan. Assets left to a spouse or any qualified charity are usually not subject to estate tax. One way to avoid Canadian and U.S. Federal estate and gift taxes is to distribute the property in incremental gifts during the person's lifetime. Individuals may give away as significant amounts without incurring gift tax. Other tax-free alternatives include paying a grandchild’s college tuition or medical insurance premiums free of gift tax—but only if the payments are made directly to the educational institution, medical provider.

Other tax advantaged alternatives to leaving property, outside of a will, include qualified or non-qualified (education, disability or retirement savings) plans, certain “trustee” bank accounts, transfer on death (TOD) financial accounts, and life insurance proceeds.

Because life insurance proceeds generally are not taxed for income tax purposes, a life insurance trust could be used to pay estate taxes. However, if the decedent holds any incidents of ownership like the ability to remove or change a beneficiary, the proceeds will be treated as part of his estate and will generally be subject to the estate tax. For this reason, the trust vehicle is used to own the life insurance policy. The trust must be irrevocable to avoid taxation of the life insurance proceeds.

Due to the time and expenses associated with the traditional probate process, modern estate planners frequently counsel clients to enact probate avoidance strategies.

Some common probate-avoidance strategies include:

• revocable living trusts,
• joint ownership of assets and naming death beneficiaries,
• making lifetime gifts, and
• purchasing life insurance.

If a revocable living trust is used as a part of an estate plan, the key to probate avoidance is ensuring that the living trust is "funded" during the lifetime of the person establishing the trust. After executing a trust agreement, the settlor should ensure that all assets are properly re-registered in the name of the living trust. If assets (especially higher value assets and real estate) remain outside of a trust, then a probate proceeding may be necessary to transfer the asset to the trust upon the death of the testator.

Trusts may be used to provide for the distribution of funds for the benefit of minor children or developmentally disabled children. For example, a spendthrift trust may be used to prevent wasteful spending by a spendthrift child, or a special needs trust may be used for developmentally disabled children or adults. Trusts offer a high degree of control over management and disposition of assets. Furthermore, certain types of trust provisions can provide for the management of wealth for several generations past the settlor. Typically referred to as dynasty planning, these types of trust provisions allow for the protection of wealth for several generations after a person's death.

Mediation serves as an alternative to a full-scale litigation to settle disputes. At a mediation, family members and beneficiaries discuss plans on transfer of assets. Because of the potential conflicts associated with blended families, step siblings, and multiple marriages, creating an estate plan through mediation allows people to confront the issues head-on and design a plan that will minimize the chance of future family conflict and meet their financial goals.