Estate Planning 101

The best time to plan your estate is now, while you can—before you need an estate plan. Remember, advance planning is the key to any successful endeavor.


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The purpose of estate planning is to be sure that after you pass away, your assets go to your intended beneficiaries. Therefore, people often associate estate planning with old age and decide to put it off. However, the best time to plan your estate is now, while you can—before you need an estate plan. Remember, advance planning is the key to any successful endeavor.

Asset Preservation

It’s difficult to pinpoint any particular age for starting to plan your estate. However, if you begin now, you may be able to preserve your assets for your spouse and other heirs in a safe and tax-efficient way. A simple will can efficiently transfer your assets; however, you’ll have no guarantee that a reliable, unbiased investment manager will succeed you. A flexible legal arrangement called a trust may help to ensure that your family’s financial future is protected if you die or become incapacitated.

In your trust agreement, you legally transfer some or all of your assets to a trustee’s care. You can make the transfer effective immediately, upon disability or death, or at some future time. Carefully choose a trustee with strong investment skills and experience to handle substantial assets. Poor investment decisions could mean a lower standard of living for your spouse or a reduced inheritance for your beneficiaries. When you choose a professional asset manager as your trustee, you’ll feel secure knowing that your family’s finances will be carefully managed, no matter the age, health or financial experience of your heirs.

Reduce Uncle Sam’s Share

Keep in mind that the amount that can be sheltered from federal estate tax is $2 million in 2007-2008 and is scheduled to increase to $3.5 million in 2009. This means you can avoid owing estate taxes on any amount that you leave to your heirs under the specified threshold. (The estate tax is scheduled for repeal in 2010, but Congress must act to extend repeal beyond that year.) Transfers to a spouse generally are not subject to estate tax. However, estate tax rules may make it difficult to escape paying taxes when those same assets eventually pass to your children or other heirs. By planning ahead and setting up a trust now—before you actually need it—your children may be able to avoid paying hefty taxes on the assets they inherit from your spouse. Of course, professional guidance is essential before acting.

Another way to reduce your potential estate tax is to remove assets from your future estate by giving them away. The tax law exempts small gifts with a gift tax annual exclusion. This tax break can be an opportunity for making tax-free transfers over your lifetime. Each year, you can make gifts of as much as $12,000 each to as many individuals as you want without gift tax consequences.

If your spouse provides a gift as well, the tax-free amount doubles to $24,000 per person, per year. Also, as much as $1 million total in otherwise taxable gifts can be made without incurring gift tax.

You can turn a sizable gift into a tax-advantaged source of income by setting up a charitable remainder trust. Simply set up the trust during your lifetime, or in your will, and fund it with your charitable contribution. The charity will receive the trust’s assets when the trust’s term ends. Before that, income from the trust can be paid to anyone you choose—including yourself—as the trust’s beneficiary. Thus, a charitable remainder trust allows you to support a good cause and pay yourself or your beneficiaries as well.

Protect Your Family

No one likes to think about his or her own mortality or the chance of becoming incapacitated. That’s exactly why so many families are caught off guard and unprepared when incapacity or death strikes. You can protect your family and help ensure their financial future with a properly designed trust.

Patrick Dolle is vice president and manager of the Wealth Management and Planning teams in the Fifth Third Private Bank. He can be reached at (513) 534-4344 or Patrick.Dolle@53.com.

This article is reprinted with permission from The Family Business Report sponsored by the Goering Center at the University of Cincinnati College of Business Administration.