Transferring assets tax-free: 2006 update

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1 Transferring assets tax-free: 2006 update New tax law increases gift tax exclusion limits Thanks to changes in the 2006 tax law, you can give away more money as gifts without paying the federal gift tax. Gifts that meet the guidelines are also tax-free to the recipient. Following are the new maximum limits for gift-giving. Gifts to... Given by... Old New Maximum Gift Maximum Gift Individual Individual $11,000 $12,000 Individual Married couple $22,000 $24, college savings Individual $55,000 $60,000* plan/prepaid tuition plan 529 college savings Married couple $110,000 $120,000* plan/prepaid tuition plan Spouse who is not Spouse who is $110,000 $120,000 a U.S. citizen a U.S. citizen * For gift tax purposes, contributions larger than $12,000 (individual) and $24,000 (married couple) are prorated over five years and require the filing of gift tax returns. See how gifts can fit into your estate planning Gifts are not only a way to help relatives, friends, or worthy causes; they are an effective estate-planning strategy because they can help reduce your estate and leave less of your assets vulnerable to the estate tax. There are no restrictions on the number of gifts you can give tax-free as long as each gift meets the annual exclusion The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. PTGTX

2 Plan Your Estate plaintalk financial skills for life GET A FINANCIAL START

3 Clear, candid PlainTalk investment guides provide the practical tips and tools you need to take charge of your financial future. And when you re ready for even more help, Vanguard can provide the expert consultation and advice you need. For more information about our advice services, visit or call CONTENTS You Need a Good Estate Plan 2 Step 1: Size Up Your Situation 5 Step 2: Minimize Your Taxes 10 Step 3: Get to Know the Basic Tools 13 Step 4: Pick an Estate Planning Professional 22 Get Started Now 23

4 Let s face it. Your death will be a difficult time for your family and friends. But if you leave behind a poor estate plan or no estate plan it will be even worse. At best, legal problems and delays will add to their grief; at worst, state law will decide when and how your property is distributed, no matter what you or your survivors might have wanted. With a good estate plan, you can ensure that your family s financial needs are met, your property is distributed in a timely and proper manner to the people or organizations you want to benefit, and the taxes, fees, and work involved in settling your estate are minimized. Estate planning is a complex process, one best tackled with the help of capable, experienced professionals. This PlainTalk guide is intended to help you understand the basics of estate planning so you are prepared to meet with a professional to create or update a plan that meets your family s needs. PLAN YOUR ESTATE 1

5 You Need a Good Estate Plan Estate planning isn t just for the very rich or the very old and it involves more than just planning to reduce taxes. Everyone needs an estate plan. Without one, you could put your family s financial security in jeopardy. If you don t have an estate plan, you need to create one now. In addition to providing peace of mind, a flexible, up-to-date estate plan can help: Provide support and financial stability for your surviving spouse. Preserve assets for later generations. This may be especially important if your estate is large enough to be subject to estate and inheritance taxes or if you have children from a previous marriage. Ensure that your wishes are carried out when you die or can no longer manage your affairs. Provide care and support for your children or grandchildren, especially minors or those who have special needs, perhaps because of disabilities or chronic illness. Support a favorite charity, college, or cause with a gift of money, securities, or other property. Ensure that your assets are distributed in a timely fashion, with a minimum of legal hassle. Minimize the taxes and expenses that can be incurred as part of settling an estate. Provide sufficient cash to meet expenses and avoid the forced sale of assets. Ensure that the beneficiaries named on your life insurance and retirement plans are still the people you want to benefit and that those designations are coordinated with your other estate planning documents. Protect your family s privacy. (A will becomes a public record once your estate is settled, so anyone who has an interest in your finances can pry into them. An estate plan can be designed to prevent that.) 2 THE VANGUARD GROUP

6 Set and meet the expectations of survivors to avert confusion, resentment, and even lawsuits. Make certain that your family business can survive and prosper during the transition after your death. Traditional estate planning involves preparing a will, creating trusts, naming beneficiaries for insurance policies and retirement accounts, selecting guardians for minor children, and many other tasks. In addition, some families need to take on estate tax planning. A failure to plan for taxes could leave your family s property vulnerable to the federal estate tax, which has a maximum rate of almost 50%. And most states also impose some form of death tax. Don t think you have enough assets to worry about the estate tax? Just about everything you own or have the right to control is subject to the estate tax: homes, investments, insurance proceeds, retirement plans, jewelry, collectibles everything. When you add it all up, you may be surprised at the size of your estate. The 2001 federal tax law unleashes important changes every year through If your estate plan was created before this law was enacted, you almost certainly need to revise your plan because of the many changes in the law. PLAN YOUR ESTATE 3

7 Because of those continual changes, estate planning documents should be written in very flexible terms. And you need to explain your intentions clearly to those who will serve as executor of your will or as trustees so they can ensure that your estate planning goals are achieved. In some situations, it may be beneficial to give your executor and trustees some additional powers to ensure your wishes are fulfilled. "web link Help your family s next generation plan their financial futures with assistance from our PlainTalk guides. Click on Get a Financial Start at Obviously, a good estate plan is essential to your family s financial wellbeing. What follows are four simple steps that will help you and your estate planning advisors create that plan. Many people use a team of experts to help develop an estate plan: a financial planner or investment manager, a trust officer, an accountant, and an insurance agent. An estate planning attorney can help develop strategies, but he or she must be the one to actually draft the estate plan s documents. 4 THE VANGUARD GROUP

8 Step 1: Size Up Your Situation Two key elements provide the basis of your estate planning: the nature of the assets in your estate and the characteristics of your intended beneficiaries. Some assets such as a family business require a major commitment from the recipient, while other assets such as a portfolio of mutual funds do not. Some assets can be left by will or personal trust, while others such as retirement accounts and insurance proceeds are usually left to the beneficiaries designated on the accounts or policies. (Making sure the right beneficiaries are named is an essential part of estate planning.) It s also important to think about your beneficiaries. Are they people or organizations? Are they minors or adults? Do you have children from a previous marriage? Are your intended beneficiaries good at managing money, or will they need help? A number of factors will contribute to your decisions about who will receive what assets and how they will receive the assets. A charity might prefer to receive your money, while your affluent son might prefer to get the family beach house. plan PLAN YOUR ESTATE 5

9 Let s say you want to name your daughters as two of your beneficiaries. One is a thrifty and successful investor, but the other has no interest in investing and tends to overspend. You might leave the first daughter money free and clear. But to protect the second daughter, you might leave the money to a trust that would provide professional financial management and control how the money can be spent. If you are married, your spouse needs to be involved in your estate planning from the start. Some important strategies you ll want to consider require coordination between both spouses plans. You should also discuss your estate planning with other family members if possible. Hard feelings can arise when items that have sentimental value for one relative are unknowingly left to another. characteristics that might affect how you would want them to benefit from some property or assets in your estate. Once you have completed your inventory, take time to become familiar with the basics of estate planning. That will help you work most effectively with your estate planning professional. quick tip The many changes to the tax law between now and 2011 could affect how much each of your beneficiaries will receive unless you have a flexible, up-to-date estate plan. Start your estate planning on page 7 by drawing up an inventory of all your property, along with a realistic estimate of each asset s value. Give careful consideration to each of your potential beneficiaries, and make note of any 6 THE VANGUARD GROUP

10 worksheet Your Personal Inventory Your Assets Primary residence $ Mutual funds, stocks, bonds, and other investments Cash, CDs, and bank accounts Retirement accounts Personal property (cars, jewelry, artwork) Life insurance benefits Vacation home and other real estate Private business interests Other assets Assets Forms of Ownership* Total Assets $ Your Debts Mortgage loans $ Personal debt (credit cards, car loans) Other obligations Total Debts $ Your Estate s Value (Total Assets minus Total Debts) $ *Is the property held in your name, your spouse s, jointly, or some other way? Potential Beneficiaries Name Characteristics PLAN YOUR ESTATE 7

11 Tax Basics The federal government taxes gifts of Wealthy families were once able to given to the second generation. The taxes that will result from the 2001 property between people whether the escape paying the estate tax twice on amount that is exempt from the GST tax law. For 2010 only, the law will giver is alive (the gift tax) or deceased the same assets by skipping their tax changes repeatedly in the coming change how you determine the cost (the estate tax). The tax rates are children s generation and leaving years. How you use that exemption basis of an inherited asset. Note progressive, based on the value of the property directly to their grandchildren. can be an important planning issue. that the estate tax is scheduled to property being transferred. Many states impose similar taxes. Another federal tax that can be levied on your estate is the generationskipping transfer tax (the GST tax). To discourage that, the federal government created the GST tax, which is automatically imposed at the highest federal estate tax rate in addition to any estate or gift tax owed on assets left or These are all taxes you may be able to avoid or minimize with proper planning. The table below shows many of the changes to the estate, gift, and GST be repealed in 2010, only to return in Of course, the federal government could and probably will change the law before then and Beyond Federal estate-tax exemption $3.5 million Unlimited $1 million $1.5 million $2 million $1 million GST-tax exemption $3.5 million Unlimited $1.12 million $1.5 million $2 million $1.38 million* Gift-tax exemption $1 million Maximum rate for estate, GST, and gift taxes combined 49% 48% 47% 46% 45% 35% (gifts only) 55% Worth noting Deduction for family-owned business is repealed. Estate and GST taxes eliminated. Modified costbasis in effect. Estate and GST taxes reinstated. *This amount is an estimate; the actual exemption will depend on a cost-of-living adjustment. This estimate assumes a 3% cost-of-living adjustment. 8 THE VANGUARD GROUP PLAN YOUR ESTATE 9

12 Step 2: Minimize Your Taxes Because the federal estate, gift, and generation-skipping transfer taxes have maximum rates of almost 50%, you ll want to do an appropriate amount of planning based on the size of your estate. Most families don t have enough assets to make the estate tax a concern. If your estate (including your spouse s property) will be under $1 million, you probably don t need to worry about estate tax planning at least not yet. If you have more than $1 million, you need to consider estate tax planning. The more assets you have, the more aggressive and complex your plan may become. Many strategies for reducing estate taxes are complicated and involve giving up control of some assets during your lifetime or require the filing of additional income tax returns each year. And some risks can be involved a novel estate tax planning strategy could be challenged in court. As you think about your estate plan and as you work with an estate planning attorney, always keep these factors in mind: How important is it for me to control all of my assets during my lifetime? How much complexity can I deal with, and how much work am I willing to do to save on taxes? How much legal risk am I willing to take by using aggressive strategies in my estate plan? You and your advisor or attorney might very reasonably decide that your answers to those questions will rule out certain estate tax planning strategies. For some people, the amount of discomfort and hassle caused by these strategies simply may not be worth the amount of tax they would save. 10 THE VANGUARD GROUP

13 Three Tiers of Estate Tax Planning Although there are many exceptions, families having estates worth more than $1 million can generally be divided into three tiers to determine which estate tax planning strategies they should consider, as shown in Figure 1.Your estate planning advisor or attorney can explain more about some of the strategies listed and others and help you determine whether they re right for you. Families in the first tier should use a basic strategy, making sure that they take advantage of what the law provides, such as tax credits. A family in the second tier should be more aggressive, trying to freeze their estate at its current level and shifting appreciation to the next generation. A family in the third tier might be more aggressive still and actively try to reduce the value of the family s estate. Figure 1. Tax Planning Tiers Size of Estate Sample Techniques* Tier 1: $1 million to $2 million Credit shelter or bypass trusts. Basic Life insurance trusts. Modest tax-free gift giving. Marital trusts. Tier 2: $2 million to $5 million The above, plus: Freeze Estate Maximize tax-free gift giving. Conservative estate-freezing strategies, such as grantor retained annuity trusts and intrafamily sales and loans. Charitable lead trusts. Tier 3: More than $5 million The above, plus: Reduce Estate Generation skipping transfer tax trusts. Private annuities. Aggressive estate-reduction strategies, such as family limited partnerships and restricted management accounts. Taxable gifts. *Ask your estate planning advisors what techniques might be best for you. This is only a small sample of the tools used in estate tax planning; there are many varieties and alternatives. PLAN YOUR ESTATE 11

14 Transferring Assets Tax-Free One of the most basic tools for estate tax planning is giving money away so that it s no longer in your estate and vulnerable to the federal estate tax or to state death taxes. Here are some ways to transfer assets to relatives, friends, or worthy causes without incurring taxes: Give any number of people up to $11,000 each in one year (the limit in 2003; that amount will be adjusted periodically for inflation). Married couples can give a person $22,000 in one year. Gifts to minors must usually be made through a Uniform Gifts to Minors Act (UGMA) account, a Uniform Transfers to Minors Act (UTMA) account, or a special trust. Give an unlimited amount to a favorite charity. Make gifts or bequests up to the amount exempted under the estate and gift tax credits. Contribute up to $55,000 ($110,000 for married couples) in one year to a Section 529 college savings plan or prepaid tuition plan on behalf of another person. For gift tax purposes, contributions larger than $11,000 are prorated over five years and require the filing of gift tax returns. Pay any amount toward another person s tuition or medical bills directly to the school or medical provider. Give any amount to your spouse if he or she is a U.S. citizen; up to $110,000 a year to a spouse who isn t a U.S. citizen. Strategies such as these are important because they can help shrink your estate, leaving less property vulnerable to the estate tax. Giving money during your lifetime also enables you to see how you re helping a child or grandchild perhaps with a down payment on a first home or with education expenses. Of course, while helping others is obviously very nice, you want to make sure you keep enough to have a secure and comfortable standard of living. "web link The estate and gift taxes aren t the only taxes you should try to minimize. Learn how to cut current income tax on your investments by taking advantage of our Be a Tax-Savvy Investor guide at 12 THE VANGUARD GROUP

15 Step 3: Get to Know the Basic Tools At its most basic level, estate planning starts with the ownership of your property and how it will pass to your beneficiaries when you die. Some of your property may be held in a personal trust, some may be owned by you, some by your spouse, and some by both. Many people rely on a last will and testament (a set of written instructions) to dictate how their property is to be distributed upon death. Despite its name, a last will isn t always the last word on how your property will be distributed. beneficiaries on retirement accounts or insurance contracts can override the terms of a will. (Beneficiaries are commonly named on IRAs, retirement plans, insurance and annuity contracts, and directed beneficiary accounts, which are also known as transfer on death accounts.) In addition, property can also be distributed according to the terms of a partnership or shareholders agreement. And state law may dictate how some property is distributed to ensure that a spouse and minor children receive a minimum percentage of the estate. Property held in a trust would be distributed according to the terms of the trust no matter what the will says. Similarly, the naming of PLAN YOUR ESTATE 13

16 Personal Trusts A personal trust is a legal arrangement through which property is held by a trustee on behalf of a beneficiary. The person who creates the trust is known as the grantor (or sometimes as the creator, donor, settlor, or trustor), and the person or company holding the property is known as the trustee. The two main categories of trusts are those created when the grantor is alive (a living or inter vivos trust) and those created upon the death of the grantor. Revocable trusts are among the trusts that you could create while you are alive. They can be changed or revoked at any time during your lifetime, so you always have control. When you die, the trust becomes irrevocable (unchangeable). Irrevocable trusts can be created either while you are alive or through the terms of a will or other personal trust after you die. Once they are created, they cannot be changed or revoked. Some irrevocable trusts provide tax benefits that aren t available through any type of revocable trust. quick tip Are you concerned that your estate may be subject to taxes? Our Personal Financial Planning Service can help with an estate planning analysis. Call , or go to our website at 14 THE VANGUARD GROUP

17 Trusts are often used as part of a plan to minimize or eliminate estate taxes, but there are also good reasons unrelated to taxes for using a personal trust. Here are some situations in which you might choose to set up a trust while you are alive: You or a family member will need professional asset management in the event of incapacity or for some other reason. You don t have the time or inclination to manage your financial affairs. You want a professional trustee to run your estate after you die, and you want to test-drive the trustee. You own property in more than one state, or you move often from state to state. Your probate estate (the property passed by a will) could be subject to creditors. But there are also reasons why you might choose to have a trust created upon your death: You have a child or children from a previous marriage. You have minor children or a child with special needs. You doubt your beneficiary can manage the assets. You want to provide incentives for your beneficiary to get an education or achieve other goals. You want to control how your beneficiary uses the money. You want the trust assets to eventually go to a charity or someone other than the initial beneficiary. You want to use a single fund to benefit different people at different times. Probate costs and hassles are so bad in your state that they should be avoided. Your will is likely to be challenged in court or receive publicity. PLAN YOUR ESTATE 15

18 The person or company you name as your trustee will manage the trust s assets and distribute income and property under the terms of the trust document. In some cases, you would be the trustee so you would retain full control of the assets during your lifetime. In other cases, a person or corporate trustee (usually a trust company or a bank) would be the trustee. In order to achieve tax benefits from some types of trusts, it is sometimes necessary to name a person other than yourself or a relative as trustee. While you may be thinking about naming as trustee a friend or relative who is familiar with the beneficiaries, that person may not have the time or expertise required to manage the assets and handle the administrative chores. A corporate trustee could handle the asset management and administration of the trust, but it might lack the personal understanding of your beneficiaries needs. One solution to those issues is to name co-trustees a corporate trustee to run the trust, and a friend or relative to provide guidance about the beneficiaries needs. You should name a successor trustee for any individual you name as trustee in case he or she dies, becomes incapacitated, or simply no longer wants to serve as trustee. quick tip Looking for a company you can trust to serve as a trustee? Call Vanguard Asset Management Services at , or visit our website at for more information about our services and the Vanguard National Trust Company. 16 THE VANGUARD GROUP

19 How Personal Trusts Can Reduce Estate Taxes Some of the most common types of personal trusts are those used to help married couples reduce or eliminate estate tax. The most important of these is the credit shelter or bypass trust that is created when the first spouse dies. Consider a couple, Dawn and Dave, who have a combined estate of $3 million. They meet with their estate planning advisor, who recommends that a credit shelter trust be established upon the death of the first spouse. To explain why, the advisor diagrams what could happen with and without one in Figure 2. Figure 2. What a Difference a Trust Makes With a Credit Shelter Trust Without a Credit Shelter Trust Combined $3 million. $3 million. estate Dave dies $1.5 million to credit shelter trust. $3 million to Dawn. in 2004 $1.5 million to marital trust (law protects up controlled by Dawn. to $1.5 million from estate tax) Dawn dies No estate tax due. Estate tax of $460,000 in 2006 due on $1 million. (law protects up to $2 million from estate tax) By leaving $1.5 million to a credit shelter trust, the couple is able to use Dave s estate tax credit to shield that money from the estate tax. The assets in that trust are available to Dawn as needed. The remaining $1.5 million is controlled by Dawn through a marital trust. When Dawn dies in 2006, the assets remaining in the credit shelter trust can go to the couple s children and other beneficiaries free of estate tax. (This is true even if the assets in the credit shelter trust have grown to more than $2 million the amount to be shielded by the estate tax credit in 2006.) In addition, Dawn s estate is able to take advantage of her estate tax credit in transferring the assets remaining in the marital trust to the couple s children and other beneficiaries. Without personal trusts, it s likely that only one spouse s estate tax credit can be used. Dave can leave the entire $3 million to Dawn free of estate tax because of the unlimited marital deduction. But when Dawn dies in 2006, only her estate tax credit will be available to the estate. This means only $2 million will be shielded from estate tax, leaving $1 million subject to taxation. To fully fund a credit shelter trust, a couple must arrange their assets in a certain way. If property is held jointly, it may not be available to fund the trust; each spouse must have enough assets in his or her name to take full advantage of the trust. And if a beneficiary other than the credit shelter trust is named on an account, the assets in that account can t be used for the trust. PLAN YOUR ESTATE 17

20 Last Will and Testament A last will and testament (or, more simply, a will) is a set of written instructions explaining when and how probate property is to be distributed after the owner s death. (Probate property is everything you own that isn t distributed through a trust or by the naming of an account beneficiary.) A will is also used to create personal trusts. Probably the most important nonfinancial reason for creating a will is to name a guardian for any minor children. If you don t have a will, a state court will dictate who will become guardian of your children. Before naming a guardian, make sure he or she is willing to take on the job and has ideas on child-rearing that are compatible with yours. When a person dies, a state court reviews his or her will to determine whether it s valid and then oversees the distribution of property in a process called probate. In some states, probate can be time-consuming and expensive, so many people choose to distribute at least some assets through estate planning tools (such as trusts) other than a will. Another reason that people use trusts or other tools to transfer property is that a will becomes a public document once an estate is settled, so anyone can find out about the family s finances. Transfers remain private if they are done through a personal trust or by naming a beneficiary directly on an account. Even if you plan to distribute all your property through trusts or beneficiary designations, that doesn t mean you can neglect your will. Let s say you receive some property outside of your trusts that can t be passed by a beneficiary designation. You need a will to direct how those assets are to be distributed. 18 THE VANGUARD GROUP

21 In your will, you ll name an executor, who is the person or company in charge of administering and distributing your estate. (The executor is sometimes referred to as the administrator or the personal representative.) This person is responsible for managing the assets in the estate until they re distributed and for preparing the tax returns for estate and inheritance taxes and income tax on any earnings received by the estate before assets are distributed. If you name a person as executor, make sure he or she is willing and able to take on the work and is familiar with your wishes. Although you may want to name a friend or relative as executor, carefully consider whether that person has the financial and legal savvy to handle the job. You ll probably want to name some alternate executors in case your first choice dies, can no longer handle the job, or simply doesn t want to serve as executor. Some people name a bank or trust company as executor. These companies can be expensive, but they have staffs of professionals who are experienced at handling estates and preparing the necessary tax returns, so they may be able to settle your estate more quickly than a friend or relative could. protect PLAN YOUR ESTATE 19

22 Substitutes for Wills Property isn t passed on only through personal trusts and a last will and testament. You can also leave property through beneficiary designations, business contracts, and certain forms of ownership all of which can be thought of as substitutes for wills. Consider the case of Phil, who s a partner in a small business with his brother, Jack. Their business agreement spells out that a surviving partner has the right to buy out the other s shares if one dies. The business provided life insurance as a benefit, and Phil named his brother as the beneficiary. Phil named his cousin, Jennifer, as beneficiary of his retirement accounts, and he had some investment and bank accounts with no beneficiary named. Phil recently married Susan, and they bought a house as joint owners with right of survivorship. He and Susan drew up wills, naming each other as the sole inheritor of all their property, including Phil s share of the business. Phil assumed that the will would take care of everything but he was wrong. Because he didn t update his beneficiary designations, here s what would happen if Phil died. Property: Business House Insurance Retirement Investment Proceeds Plans Accounts Recipient: Jack Susan Jack Jennifer Susan (brother) (wife) (brother) (cousin) (wife) The will would have been overridden by some of the will substitutes the business agreement and the designations of beneficiaries on the insurance policies and retirement plans. Susan might have some recourse if her state law dictated (as many do) that a surviving spouse must inherit a certain percentage of a spouse s assets. But she might not have been able to get back a significant part of Phil s estate. The point of this example is that a will is only a part of an estate plan. People also need to consider beneficiary designations (their retirement plan wills and insurance wills ), business agreements, and other substitute wills that can pass property on. And they must keep those substitute wills up to date, or their property may not go to their intended beneficiaries. 20 THE VANGUARD GROUP

23 Other Estate Planning Tools Your estate plan isn t complete even if you have some personal trusts and a will. A number of other tools can help protect you and your family in a variety of ways. Some of the more common tools are listed below. Advanced directive for health care (often called a living will) to provide instructions to your physician on the types of life-sustaining treatment you do and do not want if you are unable to make your wishes known. Health care power of attorney to enable a trusted relative or friend to make decisions about your medical care if you are unable to do so. Financial power of attorney to arrange for the handling of your affairs and the management of your assets if you are no longer willing or able to do so. Letter of instruction to tell your family your wishes in such matters as funeral plans and obituary information that aren t covered by other documents. List of emergency information to help your family locate your assets and to provide the names and phone numbers of key contacts such as lawyers, accountants, and others who may be needed. An estate planning professional can help you create a plan that s right for your unique circumstances and the laws of the state or states where you live or own property. That plan may well include some elements not discussed here. PLAN YOUR ESTATE 21

24 Step 4: Pick an Estate Planning Professional The federal laws affecting estates changed a lot in 2001 and will continue to change each year through So an estate plan you created under the old laws could very well fail to accomplish your goals. You and your family need an expertly designed plan that s flexible enough to fulfill your wishes both now and as the rules change. Because of changes in the federal laws, many states are also changing their laws, especially those involving estate and inheritance taxes. And state laws vary greatly. What may work in your state of residence may not work in another state where you own property. Worse, seemingly small errors in an estate planning document can make it invalid possibly shortchanging your beneficiaries. For these reasons, families often use a team of experts to develop an estate plan, perhaps including a financial planner or investment manager, a trust officer, an insurance agent, and an accountant. Many professionals can help in designing an estate plan, but eventually you ll need a lawyer who practices estate law to draft the documents. How can you find qualified estate planning professionals? Start by asking trusted friends, financial and legal advisors, and colleagues to recommend people. Then check their credentials: This is a specialized area, and you want a bona fide specialist. Interview candidates before hiring anyone, getting a detailed explanation of what they can and cannot do. They should be able to provide you with a reliable estimate of the cost based on your family s situation and the size and complexity of your estate. Importantly, make sure you and your family are comfortable with the person you hire; estate planning can involve some very private and personal issues. 22 THE VANGUARD GROUP

25 Get Started Now Now that you know how important estate planning is, it s time to get started. If you die or become incapacitated without an estate plan in place, the consequences for your family can be devastating. Think about the two key elements of estate planning: the nature of your assets and the characteristics of your intended beneficiaries. Which of our beneficiaries can handle wealth? Which could not? Do any have special needs? Which of your assets should go to which beneficiaries? Don t forget to include favorite charities and other causes if you re so inclined. Now get started by writing down a list of your assets, your estimate of what they re worth, and where they re located (start with the worksheet on page 7). If you know to whom you d like to leave specific pieces of property such as cars, furniture, jewelry, collectibles, or artwork, note that on your list. This inventory will be extremely helpful when you actually begin working with an estate planning professional. Next, compile a list (including addresses and phone numbers) of people who might have some role in your estate plan potential trustees and executors. You can draft your list of emergency information and letter of instruction yourself. But the other documents in your estate plan need to be drafted by a professional. Now you can start calling around to find and hire that professional. PLAN YOUR ESTATE 23

26 How Vanguard Can Help You might want to begin with Vanguard Personal Financial Planning Service, which offers an estate planning analysis for a one-time fee of $500. (Discounts are available to Flagship and Voyager clients.) Our knowledgeable estate planners can assist you in assessing your estate s current value and structure, helping you to minimize the tax burden on your estate and your survivors, and showing you how to preserve assets for future generations. Learn more about our planning service by visiting our website at or calling If you have personal trusts that you d like to move to Vanguard or if you are considering creating one with us, call Vanguard Asset Management Services at As a client, you can consult with our estate planning attorneys and trust officers at no additional cost. You can learn more about our trust services at 24 THE VANGUARD GROUP

27 Whatever your financial goals, PlainTalk investment guides can help you achieve them. If you enjoy the convenience and interactivity of online planning, visit PlainTalk on the Web at It s packed with useful investment information and planning tools. PlainTalk programs are also available by mail. Order online, or call business days from 8 a.m. to 10 p.m. or Saturdays from 9 a.m. to 4 p.m., Eastern time.

28 Post Office Box 2600 Valley Forge, PA Facts on Funds, Financial skills for life, Flagship, PlainTalk, The Vanguard Difference, The Vanguard Group, Vanguard, Voyager, and the ship logo are trademarks of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners. Vanguard Personal Financial Planning Service is provided by Vanguard Advisers, Inc., a registered investment advisor. Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered trust company operated under the supervision of the Office of the Comptroller of the Currency. World Wide Web Toll-Free Information For more information about Vanguard funds, visit or call , to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read it carefully before investing The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. BEPN