Monthly Planning Tips Archive
Philanthropy as a Family Affair
Important gifts can be planned to help a grandchild with college expenses, or give tax-wise assistance to an aged relative, or provide significantly at death for worthwhile causes while assisting your family. Consider these examples:
College Education Fund. Harriet wants to make a significant gift and also set up a college fund for her three granddaughters. She decides to fund a charitable remainder unitrust that will last for 20 years and make payments to the grandchildren, starting when the oldest enters college. The trust would be drafted and invested so little or no income is paid initially, allowing the fund to grow substantially in the pre-college years. An independent trustee channels income to whichever grandchildren are attending college. Most of the payments will be favorably taxed as long-term capital gain, minimizing any taxes.
The Doctor and His Mother. Dr. C, age 60, for years has sent a monthly $500 check to his aged mother. His advisers suggested he instead transfer some savings to a charitable gift annuity that would make payments to mom, with income continuing to Dr. C after her death. Result: He received a substantial income tax charitable deduction and now the payments to his mother are made from a tax-exempt organization, rather than from interest that was taxable to Dr. C.
The Good Sister. Mrs. W, age 61, is a widow whose children are grown and highly successful in their careers. All were well provided for under a trust set up under the will of Mrs. W’s late husband. Mrs. W’s sister has had some financial setbacks, however, and Mrs. W is concerned about her ability to manage money. Mrs. W. would like to do something to help her sister and also memorialize her late husband. She decides to transfer some highly appreciated stocks and real estate to a charitable remainder trust named in honor of her husband. The trust will provide an income to her sister for life, with solid management from a professional trustee. Mrs. W receives an important tax deduction, plus peace of mind that her sister will be well provided for.
Family Charitable Estate Planning. Your estate plan can provide significantly for worthwhile organizations in a way that “shares” bequests with family members. Our benefit can be deferred, while lifetime income is paid to a spouse or children – often with significant death tax savings that may actually leave family members with more assets, after taxes.
Are any of these ideas of interest to you? If so, please call our office.
Low-Risk Places to Keep Some Cash
“Safety of principal” has become more and more important to Americans in today’s economy, and with that in mind we’ve provided some suggestions for places where you can deposit funds and still sleep at night.
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Bank certificates of deposit. Short-term CDs are free of risk because they are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor, per institution. Joint accounts are insured up to $500,000.
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Bank money market accounts. These accounts also are insured by FDIC but offer lower yields than money market mutual funds.
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U.S. Treasury securities. Treasuries are backed by the full faith and credit of the U.S. government and are free of state and local (but not federal) taxes.
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U.S. savings bonds. Series EE and I bonds offer the same safety of principal as Treasuries and provide the option of deferring tax on accumulated interest until the bonds are cashed or reach final maturity. Bond interest also is free of state and local tax.
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Money market mutual funds. Money market funds provide returns based on short-term investments and historically have been considered safe, even though uninsured.
- Commercial annuities. Fixed annuities from top-rated companies are generally regarded as safe (seek your advisers’ recommendations). State guaranty associations offer some protection against company insolvencies in most areas (see www.nolhga.com for specifics).
- Charitable gift annuities. Payments to our gift annuity recipients are backed by all of our resources. It’s worth noting, as well, that no gift annuity payment has ever been missed in the history or our program.
What is Probate...and Can You Avoid It?
Probate is the word used to describe the administration of a person’s estate, which includes determining if a valid will exists. The settlement of an estate can be a long, complex and sometimes expensive procedure. Each state has its own highly technical probate procedure, but the procedures usually follow this common pattern:
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When a person dies, his or her last will must be found and filed before an officer of the court with a petition to admit the will to probate.
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The court must hold a hearing to determine the validity of the will, after serving notice to all persons who might want to contest the will.
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If the will is admitted to probate, the court must appoint an executor – generally the person nominated in the will – or appoint an administrator if the will does not name an executor.
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Notice to creditors must be filed within a short time after the appointment of the executor. This notice establishes an absolute deadline for presenting claims against the estate.
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The executor must collect, manage and safeguard all of the estate's assets, including an initial inventory and appraisal of the estate assets, normally filed within 60 days of his or her appointment.
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Claims against the estate must be settled. These debts, if not unusual, are generally paid by the executor; some claims, if doubtful, will be set for hearing by the probate court.
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Taxes must be paid, and these include federal estate taxes, state death taxes, income taxes on income earned by the estate and the decedent's final income tax.
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Finally, the court must interpret the will, supervise distribution of all testamentary gifts and pass upon a final accounting filed by the executor.
All of these sometimes lengthy and formal procedures are intended as a means of preventing fraud and of safeguarding and accomplishing, after your death, those personal objectives that you expressed in your will.
Revocable Living Trusts Can Bypass Probate
Certain assets don’t go through probate: life insurance, most jointly owned property, IRAs or other accounts with death beneficiary designations, and property owned within a revocable living trust. Some people try to put all their assets into joint names to avoid probate, but these attempts may present both tax disadvantages and practical planning problems. Property you transfer to a revocable living trust during life is not subject to the delays, expenses and restrictions of probate, however, and can be planned to satisfy personal and tax planning needs. Trusts may be especially helpful to people who own real estate in several different states and face multiple probate.
Even if you do have a living trust, you still need a will to clean up any assets not placed in trust during your lifetime and to name your executor and perhaps a guardian for someone in your care. If you do set up a living trust, it’s vital that you follow through and actually transfer ownership of your assets into the trusts. Otherwise your trust will be a waste of time and money. And it’s equally important, as you acquire new investments and other assets, that you transfer those assets into the trust, as well.
Keep in mind that your revocable living trust can make lifetime charitable gifts on your behalf and you will receive income tax charitable deductions on your personal tax return. You can also make us a beneficiary of a living trust, similar to a will, with potential tax savings for your estate.
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