Massachusetts Estate Planning Basic Terms
Estate planning applies the law of property, wills, trusts, insurance and taxation to the ordering of financial affairs.
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Probate is the process of proving a will and the legal process of administering the estate of the deceased. If a person dies owning property that is administered by the probate court usually by having a will, there is a "probate estate." Assets in the probate estate are listed in an inventory filed with the probate court. The probate estate must pay estate taxes and all claims against the estate before it is distributed to the heirs. This process is usually carried out by the executor or administrator of the estate under the supervision of the court. There are ways to avoid probate such as setting up a living trust.
There are substantial federal taxes that are assessed against the estate of an individual who has died. Federal estate taxes are expensive they start at 37% and quickly go up to 55%. These taxes must be paid in cash, usually within nine months after you die. Many estates do not have this kind of cash and assets often have to be liquidated. However, estate taxes can be substantially reduced or even eliminated if you plan ahead. Both the federal government and Massachusetts allow a certain amount to pass tax free. This amount will increase over the next several years from $675,000 in 2000 to $1 million in 2006. By creating an estate plan you will be able to use these exemptions to reduce or eliminate substantial estate taxes.
An estate in Massachusetts is generally allowed to pass tax free to the surviving spouse-this is known as the Marital deduction. The marital deduction also applies to the Federal Estate tax. This deduction can be used to avoid some estate taxes.
A trust is a legal entity created by a grantor in which "title" to the property is vested in a trustee, but the benefits of ownership are enjoyed by another person- the beneficiary. The trust imposes fiduciary obligations on the trustee to act to the benefit of the beneficiary. Generally the trustee must manage the trusts assets and income for the economic benefit of the beneficiaries.Trusts may be revocable (also known as living trusts) in which the creator retains the right to alter, amend or revoke trust. Irrevocable trusts cannot be altered and usually are created at death.
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