Maintaining Separate Asset Ownership Can Benefit Estate Planning

Many couples pool their money and hold checking, savings, and investment accounts jointly. The sense of “share and share alike” can be comforting, but when it comes to estate planning, jointly held funds can limit your options.

Separate Assets are Entitled to Separate Exclusions
Equalizing the amount of assets each partner holds in his or her own name can help to minimize estate taxes. When one spouse dies, assets that are jointly held pass to the surviving spouse free of estate taxes and become part of his or her estate. Then, when the second spouse dies, only the first $1,500,000 of assets in the estate are excluded from estate taxes (for 2004).* But if assets are separately held, each spouse can pass up to $1,500,000 to the couples’ heirs free of estate taxes.

Trusts are an important part of the estate planning toolkit. A bypass trust (bypassing the surviving spouse’s estate) helps both you and your spouse maximize the use of your respective estate tax exclusions ($1,500,000 in 2004). A marital trust prohibits use of funds by a surviving spouse for other than designated purposes.

If you or your spouse have substantial assets, or expect to receive an inheritance, qualified advisors are essential to help you decide as a couple how best to manage your assets for current needs and future generations. An attorney familiar with the laws in your state can assist you in creating a valid will and evaluating the types of trusts and specific provisions that are appropriate for your situation.

An Exercise in Business Management
Managing a family’s financial future requires a business approach, but money issues often bring emotional responses. Decisions about managing family wealth can create a host of problems in a relationship. If one or both spouses have children from a prior marriage, for example, a decision to establish a separate trust for the children’s benefit can raise concerns about the level of trust and respect between the partners.

Maintaining a technical perspective on the financial and legal issues involved, and enlisting the assistance of objective experts in estate planning, can help smooth the way to establishing a sound plan that can meet your family’s needs

*The estate tax exclusion is scheduled to increase in the years ahead and then become a non-issue in 2010 when estate taxes are slated for repeal.

©2004 Standard & Poor’s Financial Communications. All rights reserved.