Too Young for Estate Planning?

At what age should people start thinking about writing a will or making other estate plans?   In most states, the only legal requirement for will-making is that a person be 18 or older and “of sound mind.”  But as a practical matter, the need for a will and other estate plans starts to arise when a person assumes family responsibilities or accumulates personal wealth sufficient to warrant planning for its distribution. 

  • Parents with minor children need wills to nominate the persons they would want to serve as guardians, should the children become orphans. Otherwise, a court might appoint a guardian who does not share the parents’ personal or religious values.

  • Parents should consider establishing trusts in their wills to provide financial management and protection for minor children in the event both mother and father were to pass away.  Term life insurance is a frequent funding vehicle for trust arrangements.

  • Individuals who are providing financial support for older relatives need to provide for the possibility – unlikely as it may seem – that they may die before their relatives.

  • Everyone, regardless of age, needs to provide healthcare directives, such as a healthcare power of attorney, in the event they become disabled and cannot make decisions on medical treatment.

  • Many young people decide to get an early start on a life of “giving back” by including the causes they care about in their wills, living trusts or retirement plan beneficiary designations.

 


 

Assisting Others with Charitable Gift Annuities

Here are some frequently asked questions on how charitable gift annuities might be used to help family members and others.

Q: Is there some way I could use a gift annuity to help support my mother (she's 77) and have the payments come to me after her death?
A: You can establish a two-life “survivorship” annuity that would provide a lifetime income to your mother and a charitable contribution deduction for you this year.  When your mother dies, the payments would continue to you for the rest of your life.

Q: Can I arrange a gift annuity for a family friend?  She is actually our part-time housekeeper and is getting ready to retire.   I would like to do something for her and a worthwhile cause, as well.

A: Gift annuities can be an important supplement to anyone’s retirement income, including friends and family members.  The friend will receive annual payments for life, but you will receive the charitable deduction.  It’s best to fund such annuities with cash, for best tax results.

Q: My son has not done a good job of saving for retirement and, candidly, is not a very good money manager.  This concerns me.  Could a gift annuity be helpful?

A: You could provide your son with a good retirement income, and money management as well,  through a deferred payment gift annuity that would start paying him at age 65 (or some other age).  You would be entitled to a significant charitable deduction.

 



Estate Plans of the Rich and Famous

A well-known estate planning publication, Classic Cases, lists financial information on the estates of famous Americans, drawn from probate records. The purpose is to illustrate how estates can be severely depleted by probate costs, state transfer taxes, federal estate taxes, income taxes and forced sale of assets to pay off debts, taxes and other expenses. In some cases, the plans of these illustrious people were sorely lacking – even though they could afford top-flight tax and legal advice.

“Estate shrinkage” doesn’t happen to just the rich and famous, of course, and there are steps you can and should take to pass more of your assets to those you love.  A $2 million estate, for example, is too small to owe federal estate tax, but state inheritance or estate taxes could be a concern for property you own in 19 states and the District of Columbia.  Probate fees are often regulated by state law, and may amount to 3% to 7% of your estate’s total value, depending on how your assets are owned.

Other common expenses include executor’s fees (plus the cost of posting a bond, if required), attorney’s fees, appraisal costs, tax preparation fees, debts and income taxes.  All of these expenses may add up a loss of 10%, 20%  or more in your estate.  With careful planning, however, many of these costs can be reduced, and it makes sense to consult an experienced estate planning professional, who can help you avoid leaving a depleted estate to your family.

 



Which Investments to Spend, Which to Leave Behind?

“I’m spending my children’s inheritance” is a bumper sticker you may spot from time to time along the highways and byways.  The June 2 Wall Street Journal carried an article on this subject entitled “The Most Valuable Assets to Leave for Your Heirs”.

The point of the article was that there are certain investments that you should spend down during your lifetime and others you should conserve as a legacy to family members.  The No. 1 asset to leave to loved ones is a tax-exempt Roth IRA, the article asserted.  In second place came securities that have lots of capital appreciation.  Capital gains taxes won’t be a problem for beneficiaries because they take a new basis, “stepped up” to the securities’ date of death value.  Real estate, collectibles and other assets offer the same tax advantage.

The article concludes by noting that there are certain assets that you should set aside for worthwhile organizations you wish to assist in your estate plan – especially traditional retirement plans such as IRAs that are not tax exempt.  For example, everything we receive from an IRA comes free of both income taxes and state and federal estate taxes.  Savings bonds are another excellent asset to leave to tax-exempt organizations.  Call us for details.

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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.