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You
might think that estate planning wouldn’t be as important now that President
Bush has passed his Economic Growth and Tax Relief Reconciliation Act of
2001. Not so. Failing to plan can still cost you and your loved ones dearly.
PLANNING TO REDUCE ESTATE TAXES
It’s a big mistake to think that estate taxes have been repealed for good.
True, the Economic Growth and Tax Relief Reconciliation Act of 2001
accelerates the amount of money you can pass on to loved ones from now
through 2009. Then, in the year 2010, estate taxes are repealed. If you can
plan ahead and schedule your death for that year, you can pass on any amount
of money -- from a modest estate to Bill Gate’s vast wealth -- completely
estate tax free. But then, in 2011, estate taxes are reinstated and
everything over the individual exemption of $1,000,000 will be taxed at a
breath-taking rate of 50 percent.
That’s assuming, of course, that Congress doesn’t extend the estate tax
repeal beyond 2010. Trying to anticipate the course of Congressional action
-- especially so many years down the road -- is a fool’s errand. But
considering that growing budget deficits and increasing ranks of retiring
baby boomers will burden our federal budget even more in the years ahead,
it’s hard to believe that Congress will have any choice but to reinstate
estate taxes. So, you could say that instead of simplifying estate tax
planning, tax reform just made it more complicated. That’s why planning to
avoid estate taxes is even more important in the years ahead.
TAKING CARE OF LOVED ONES
Of course, there are many other reasons to implement an estate plan and keep
it up-to-date. You don’t have to be Warren Buffet or Bill Gates to wonder
how your children will use -- or abuse -- your legacy. Many who’ve
accumulated a sizeable estate worry that passing on their wealth without
strings attached is setting their children up for failure. Stories abound
about the progeny of the wealthy and the dissipated lives they lead. Without
the motivation to find their own way in the world, inheritors of significant
wealth often fail to live productive lives.
You don’t need a vast fortune to worry about how your kids will use your
wealth. Handing over your hard earned money directly to your son or daughter
can send it off in unintended directions. An inexperienced, immature heir
can quickly squander wealth on fast cars and luxury vacations, with nothing
left to fund more worthwhile endeavors. Similarly, an adult child who
co-mingles your legacy in accounts shared with a spouse puts those funds at
risk should they later divorce.
A better option: keep the strings attached. Strive to keep your legacy safe
from loved ones’ creditors, exspouses, and yes, their own worst impulses.
Keep your downturn and steep decline in stock values over the last few
years, many of the donors and foundations that have traditionally been the
lifeblood of nonprofit organizations have found themselves with radically
reduced funds to give. Most nonprofits are finding it hard to make ends meet
these days, even closing their doors -- ironically, at a time when their
services to the community are most desperately needed.
While many donors make bequests to charities from their estates at death,
you don’t need to die to make a difference to a nonprofit. Several estate
planning strategies will allow you to make tax-advantaged gifts now, while
retaining income for yourself or your loved ones. If charitable giving is a
priority for you, be sure to give us a call to discuss your options.
PROTECTING YOUR WEALTH FROM PREDATORS
Anyone who has read the headlines about the obese man suing McDonald's for
his weight problem knows that the U.S. is the most litigious society in the
modern world. Anyone can be vulnerable to legal action, whether warranted or
not. The one sure thing that places you at the center of a potential
plaintiff's bull’s eye is wealth. The more you own, the more you serve as an
attractive target of legal action. Business owners -- like those in
high-risk occupations, such as medical specialists or commercial property
owners -- are especially vulnerable.
While there’s no surefire way to insulate yourself against the actions of
potential predators, there is much you can do make your wealth a less
appealing -- and less accessible -- target. Asset protection strategies
place your assets -- such as your business -- out of a predator’s reach
through strategies such as Family Limited Partnerships or Limited Liability
Companies.
But there’s a catch: you’ve got to protect your assets before your wealth is
in the crosshairs of a predator’s lawsuit. Once an action against you has
begun, it’s too late to implement asset protection strategies. If you feel
your wealth may be at risk, be sure to give us a call. funds in trust, and
have them allocated to loved ones for specific reasons: a college education,
for example, or the purchase of a home. It may seem like you’re trying to
control your children from beyond the grave. But, in fact, helping them use
your wealth wisely can be the best gift you can give them.
“Avoid the blame, treat them all the same,” goes the saying. But many
parents and grandparents take a different approach when it comes to handing
out their legacy. You probably should take into consideration the
personalities and circumstances of each of your heirs. For example, a
hard-working college graduate who wants to be a budding entrepreneur may
deserve different treatment in your estate plan that a spendthrift heir who
avoids work and responsibility at all costs. Or a child -- whether young or
adult -- with physical or mental disabilities may need special attention in
your plan. Only a thoughtfully crafted estate plan that takes all these
considerations in mind can help you achieve your most cherished dreams for
your loved ones.
CONTROLLING YOUR DESTINY, NO MATTER WHAT
Life is full of the unexpected: illnesses, injury, financial setbacks, and
ultimately, death. With an estate plan, you can ensure that you are in
charge of how your personal and financial affairs unfold, even if you’re in
no position to direct them yourself.
For those who fail to plan and fall victim to serious illness or injury, a
court proceeding called “living probate” -- also called a guardianship
proceeding -- is often their fate. During a living probate, a judge will
decide who shall be responsible for your financial and personal care -- and
it may not be the same person. Sometimes the choice is obvious -- such as
when a financially experienced, healthy and loving spouse is able and
willing to assume the responsibility. Other times, the process can become a
contentious court battle that tears families apart, sometimes irrevocably.
Far better is to make plans ahead of time to ensure that your designated
choice of individual -- or individuals -- are making health care and
financial decisions for you in time of need.
To manage your affairs after you’ve passed away, the wisest choice is to
create a plan for yourself rather than leave the task to others. Absent a
plan of your own, the legal system will step into the breach and create a
plan for you in a process called intestate succession. Will a judge who has
no idea of your wishes and desires make the same choices for your assets and
your loved ones that you would have made? Probably not. So, don’t leave
these important matters in the hands of strangers.
Of course, having an estate plan doesn’t necessarily mean you can avoid
probate. If you own property in your own name at death, probate may be
required before you assets can pass on to others. Many of our clients choose
to avoid probate, because it can sometimes be time consuming, expensive and
public. Instead, they choose trust-based planning that ensures their wishes
are fulfilled without the nuisance of probate court.
LEAVING THE WORLD A BETTER PLACE
One of the great joys of a financially successful life is having the means
to support the good works of social, civic, religious or other nonprofit
organizations. And as the outpouring of public giving demonstrated after
September 11, 2001, Americans are among the most philanthropic people on the
planet. Now more than ever, the nonprofit community needs your financial
support.
WHY JUST ABOUT EVERYONE NEEDS AN ESTATE PLAN
As you can see, tax planning is just one small aspect of the comprehensive
process we call estate planning. So, if you’ve never created a plan of your
own, now is the perfect time to do so.
If you do have an estate plan, remember that this important life planning
process is an on-going one. You need to keep it current to reflect your
changing financial circumstances and goals. If your plan is a few years old,
now is a good time to have it reviewed to see how well it will meet your
needs in the years ahead.
FAST FACTS ABOUT WEALTH, TAXES AND AMERICAN FAMILIES
•
The Federal Reserve Board estimates that some 1.3 million U.S. households
have a net worth of at least $1 million.
• The vast majority of millionaires inherited their wealth or built it on a
business they founded.
• In 1986, Fortune Magazine reported that six of the 30 multimillionaires it
surveyed said that their children would be better off with only minimal
inheritances.
• That same year, Alexander Sanger, a partner with the law firm White & Case
in New York, reported that 16 of the 20 wills Sanger drew up for newly
wealthy parents with net worth of $20 million or more left at least half the
estates to charity. Of 12 old-money clients, only one gave so much away.
• The vast majority of small-business estates don’t pay estate taxes.
Source: Joint Committee on Taxation, Treasury Department.
• Only 2 percent of deceased persons' estates were taxable in 1998. Source:
Joint Committee on Taxation, Treasury Department.
• Just 3 percent of those were farm or small-business estates.
Source: Joint Committee on Taxation, Treasury Department.
• Warren Buffet, the ultra-rich investor, plans to leave most of his wealth
to charity to encourage his children to lead productive lives. “The idea
that you get a lifetime of food stamps based on coming out of the right womb
strikes at my idea of fairness,” he says.
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