The five levels of estate planning is an efficient approach for explaining estate planning in a way that you can easily follow. Which of the five levels you need to complete is based on your specific objectives and circumstances.
The Basic Plan
The situation for level one planning is that you have no will or living trust in place, or your existing will or living trust is outdated or inadequate. The objectives for this type of planning are to:
o reduce or eliminate estate taxes;
o avoid the cost, delays, and publicity associated with probate in the event of death or incapacity; and
o protect heirs from their inability, their disability, their creditors and their predators, including ex-spouses.
The Irrevocable Life Insurance Trust (ILIT)
The situation for level two planning is that your estate is projected to be greater than the estate-tax exemption. While there is a present lapse in the estate and generation-skipping transfer taxes, it's likely that Congress will reinstate both taxes (perhaps even retroactively) sometime this year. You can also get info about estate planning via http://speedwelllaw.com/alexandria-estate-planning-attorney/.
Family Limited Partnerships
The situation for level three planning is that you have a projected estate-tax liability that exceeds the life insurance purchased in level two. If your $1 million gift-tax exemption is used to make lifetime gifts, the gifted property and all future appreciation and income on that property are removed from your estate.
Qualified Personal Residence Trusts and Grantor Retained Annuity Trusts
The situation for level four planning is the additional need to reduce your estate after your $1 million/$2 million gift-tax exemption has been used. Although paying gift taxes is less expensive than paying estate taxes, most people do not want to pay gift taxes. There are several techniques to make substantial gifts to children and grandchildren without paying significant gift taxes.
The Zero Estate-Tax Plans
Level five planning is a desire to disinherit the IRS. The strategy combines gifts of life insurance with gifts to charity. For example, take a married couple, both age 55, with a $20 million estate. Assume that there is neither growth nor depletion of the assets and that both spouses die in a year when the estate-tax exemption is $3.5 million, and the top estate-tax rate is 45%.