Estate Planning’s Extra Innings

Most people think that estate planning ends at death.  In fact, there are several strategies and elections that may be made after a family member dies to save taxes and make a more equitable distribution of an estate.  A few of the choices available for “post-mortem planning”:

  • The value of an estate is generally the fair market value of the assets on the date of death. However, tax laws also allow the use of an alternate valuation date that is six months after the date of death.  If the value of assets — particularly closely held stock — drops, using the alternate valuation date may reduce estate taxes.

  • A qualified terminable interest property (QTIP) trust allows an individual to leave income from the trust assets to a surviving spouse but also direct how the property will pass at the survivor’s death.  This can be especially attractive for those with children from a previous marriage.  The trust qualifies for the marital deduction. If QTIP language is included in the will or living trust, the executor must elect which assets and how much of the estate is to be treated as a QTIP trust.

  • Where a substantial portion of the estate consists of a closely held business or farm property, estate taxes may be paid in installments at favorable interest rates.  The executor must make an election for this deferral of taxes.

  • Beneficiaries of an estate may disclaim (decline) all or a portion of a bequest.  Any disclaimed amounts pass either to contingent beneficiaries named in the will or living trust, or if there is no will, pass under the state’s laws governing those dying without wills (intestates).  This strategy can be used by a spouse to pass assets to children, or by children, to assure a surviving parent has sufficient resources.  Charity can also be named a contingent beneficiary in a will or trust, allowing assets to pass for worthwhile causes in the event of a disclaimer or if a named beneficiary is no longer alive.

Time to Redeem?

Check the drawers where you keep important papers to see if you have any of the following savings bonds:

  • E bonds through November 1965 that are more than 40 years old
  • E bonds with December 1965 or later issue dates that are more than 30 years old
  • H bonds that are more than 30 years old
  • Freedom Shares (also known as Savings Notes)
  • HH bonds that are more than 20 years old

If you find any of these, your bonds are no longer earning interest and it’s time to redeem them.  You’ll be subject to tax on the untaxed interest, but you can reinvest the proceeds to produce more income.

Another option is to use the proceeds from redeeming the bonds to make a charitable gift.  Your income tax deduction may offset the tax.  You can even retain payments for life from your gift by funding a charitable gift annuity or charitable remainder trust.



Important — But Random — Numbers for 2015

  • While the contribution limit for IRAs did not increase (it’s $5,500, plus a $1,000 catch-up for those ages 50 and older), the limit for 401(k) contributions did go up.  The maximum is $18,000, with an additional $6,000 catch-up for 2015.

  • Social Security recipients who are under age 66 and still working can earn up to $15,720 this year before benefits are reduced.  Over that amount, benefits are reduced by $1 for every $2 of earned income.

  • If you use a personal vehicle for business, you’re entitled to deduct 57.5 cents per mile, in addition to the cost of tolls and parking.  The deduction for charitable use of a personal vehicle is 14 cents per mile.

  • Cutbacks on itemized deductions and personal exemptions begin when adjusted gross income exceeds $258,250 (single taxpayers), $309,900 (joint filers) and $284,050 (heads of households).


Don’t Put Too Many Strings on Bequests

Exactly how long do you want to control the assets you accumulated during your lifetime?  Most people are happy making bequests to family members and charities and trusting the beneficiaries.  A few, however, want to retain control long after their deaths.  One way to exert some control is through a trust, although many states have rules limiting how long trusts can last.

Whether the beneficiary is a family member or a charity, there are drawbacks to putting limits on the use of the bequest.  Even in states without a limit on trust longevity, the economics may be impractical.  For example, trust income that is divided among four children might be practical, but three or four generations later, the number of beneficiaries may be so large that trustee fees will eclipse the amount that any one individual beneficiary receives.

A similar concern can arise with charitable bequests.  It’s important to ask whether a use that is practical today will still be relevant in 75 or 100 years.  For example, a bequest in trust to provide scholarships in a particular subject area might create a problem if the school no longer offers courses in that field of study.  Or a bequest of land that is to be used solely for a playground could be obsolete if the land becomes surrounded by manufacturing.  Consider language allowing the charity enough flexibility to put the bequest to a similar use or simply have the funds distributed outright at some point.

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The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.