Estate Planning and Charitable Gifting

We will move on to discussing taxes in just a moment. First, however, I would like to take a moment to address perhaps one of the most important services involved in Estate Planning. Helping a client to understand choices and to sort out a lifetimes worth of accumulated feelings regarding what should happen to the possessions, wealth, family heirlooms, and the like is often an emotional as well as a financial experience. After all what we are discussing is our deepest relationships with family, friends, and our communities. Depending upon the age of the client and the family circumstances we may be posing questions like:

• Who do we trust to look after our children or perhaps raise them if you are not there?
• Do you think that your child or spouse will be capable of managing often complex affairs?
• Do you trust the people who you are considering to hold important positions such as an executor or trustee to act responsibly and also fairly when others are involved?
• In the case of a second marriage, we may be discussing issues such as, do all of your children share or only those from the first marriage?

That said, no discussion of Estate Planning is complete without a fundamental understanding of the tax consequences involved. The Federal Estate Tax has undergone many revisions since it was first introduced in 1916. In those days the maximum Estate Tax rate was approximately 10%. Rather insignificant compared with today's rates. Most people don't like the concept of having the accumulations that they have achieved over a lifetime siphoned off to the government. The Tax Reform Act of 1976 combined Federal Estate Tax Law and Federal Gift Tax Law. The two are now referred to as the "Unified Estate and Gift Tax". The end result is now the same, so that if a person gives away $1,000,000 before death, the gift tax on this is identical to what the Federal Estate Tax would be if the same $1,000,000 were transferred at death. The death tax is really a tax that the U.S. government (and the states) impose on an individuals right to transfer assets or property to other people.

Balances on IRAs and other qualified retirement plan accounts can some times be so eroded by the combined impact of Income and Estate Taxes that beneficiaries may receive as little as 20% or 25% of what the account was worth when the individual owned it died. That's right, people regularly leave 75% of their IRA values to the government instead of to their intended beneficiaries.

The amount that may be passed without being subject to taxation has been increasing dramatically in recent years as a result of legislation passed during the first term of President George W. Bush. However, several provisions are scheduled to “sunset” in a few years and the tax code may then revert to the prior rules.

Obviously, those individuals and families who have been fortunate enough to accumulate even modest wealth can see a very substantial amount of money be lost in taxes. The good news is with some intelligent advanced planning, a great deal of this tax can be avoided or reduced.

The simple fact is that most Americans choose to procrastinate and end up doing nothing. So why don't more people deal with these issues? Estate Planning is complicated and it will involve retaining the services of a qualified Estate Planning Attorney as well as often hiring a firm like ours. This cost, although very small in comparison to what the tax will be, (and the other perhaps intangible costs of not controlling your estate in a desirable manner) must come out of pocket now. Often Life insurance is used as a tool to help pay the taxes or to in other ways take advantage of favorable tax provisions. Some people simply don't like dealing with insurance companies. Probably the most important thing is that Estate Planning requires coming to grips with ones own mortality and dealing with issues that we may not truly feel prepared to contemplate such as our own death, the death of a spouse, the depth of our family and business relationships. Most people assume they have plenty of time so they put off their Estate Planning as long as they can. The results are often tragic.

For those who have no plan in place, state law will dictate how their estate(s) will be distributed at death. As you can imagine, the governments plan of distribution has no concern for what is in the best interest of your family.

This is not a problem only for the wealthy. Even those whose assets are not large enough to be subjected to the Estate Tax, need to be concerned about how their assets and property will pass to their loved ones.

In general, there are three places that what you have accumulated can go:

• To your loved ones and others who you designate as being recipients
• To charity
• To the government

In the course of our retirement or investment planning work with clients, we can often identify a need for more extensive estate planning work. Our experience has been that over the course of discussing important life goals, retirement planning, investment, and such, we are fortunate in becoming trusted advisors and friends for our clients. We are honored when people trust to confide in us and to share often intimate feelings about their life and their relationships with family members. Much of the technical work dealing with legal issues and such requires the assistance of an experienced Estate Attorney. We have relationships with several Attorneys and we are pleased to provide assistance in coordinating conferences with these attorneys and in making the transition to dealing with these issues a comfortable experience. We only accept Estate Planning assignments with those clients for whom we are handling other aspects of their financial planning needs.

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