Estate Planning
Core documents
Know wills (probate), revocable living trusts (avoid probate, no tax benefit), irrevocable trusts (remove assets from the estate), powers of attorney, healthcare directives, and beneficiary designations. Beneficiary designations override a will, a common trap.
The transfer system
Understand intestacy (dying without a will), probate versus non-probate assets, and the gross estate. The gross estate includes all assets owned at death, certain gifts, life insurance proceeds where the decedent held incidents of ownership, and retained interests. Deductions include debts, expenses, the marital deduction, and the charitable deduction.
Transfer taxes
Know the unified credit against gift and estate taxes, the annual gift tax exclusion, and portability of the deceased spousal unused exclusion. Lifetime gifts remove future appreciation from the estate. The step-up in basis at death eliminates capital gains on appreciated assets, creating a trade-off with lifetime gifting.
Worked example
An estate of $15 million passes to a surviving spouse. The unlimited marital deduction reduces the taxable estate to zero, deferring tax until the survivor's death. Portability allows the survivor to use the deceased spouse's unused exclusion.
Traps
Questions confuse the estate tax with the income tax basis rules, or treat a revocable trust as removing assets from the taxable estate.