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| Which would you prefer-leaving your hard-earned assets to the federal government, or passing these assets on to your loved ones and chosen charities? If you choose to ignore the question, the decision, unfortunately, will be made for you. By implementing appropriate strategies to meet your needs and wishes, however, you can potentially reduce the impact of estate taxes and pass more assets on to your chosen beneficiaries and charities-thereby creating a lasting legacy. • Estate Planning Tools • Trusts • Gifting Strategies • Charitable Giving Key Estate Planning Tools Planning is a part of everything we do in life-and in death as well. To avoid your legacy being left to chance, it's important to make strategic plans to preserve your assets from estate taxes and probate fees when you pass on. Careful planning now can insure distribution of your estate according to your wishes, and guarantee that those you love are cared for after you're gone. These are some of the estate planning tools you have at your disposal to preserve your assets according to your wishes. • Wills And Trusts • Durable Power Of Attorney • Health Care Proxies And Living Wills • Wills And Trusts: These are probably your most important estate planning tools, allowing you to spell out how and to whom you would like your property distributed. Wills accomplish this, but they offer another important benefit; a will gives you the opportunity to nominate your executor and guardians for your minor children, rather than leaving it to the courts' discretion. Trusts are actual legal entities that spell out exactly how you want your property distributed, allowing you to customize the distribution to include property management and probate avoidance. • Durable Power Of Attorney: A durable power of attorney is similar to a standard power of attorney, except that it remains valid if you become incapacitated. It's a legal agreement that avoids the need for a conservatorship, leting you designate who you want to act as your legal and financial decision maker in the event you become incapacitated. • Health Care Proxies And Living Wills: A health care proxy allows you to designate someone to make your health care decisions for you if you become incapacitated. Much like a durable power of attorney, the person you designate has the legal authority to make decisions regarding medical facilities, types of medical treatment, surgery and other health care issues. A living will, although similar to a health care proxy, is an agreement between you and the attending physician which spells out the kinds of life-sustaining treatment you will permit should you become incapacitated. Living wills can also be used in conjunction with a durable health care power of attorney. Trusts A trust is a separate legal entity involving the donor who establishes it and the trustee who manages it. It's a way of holding, managing and distributing assets for the trust beneficiaries. There are many types to choose from, each with different benefits and tax consequences. Here are a few of them. • Revocable Living Trusts: These types of trusts reduce administrative expenses and provide privacy because the trust assets are not subject to probate. • Testamentary Trusts: Testamentary trusts are established through your will to ensure that your spouse is able to take advantage of the unified credit. • Irrevocable Life Insurance Trusts: These trusts are established to provide a source of cash for family income and estate settlement costs in the event of death. If properly structured, the life insurance proceeds may completely escape estate taxation. • Charitable Trusts: These types of trusts are set up to provide income for life and benefit your favorite charity, while at the same time providing current income tax deductions and helping you avoid capital gains taxes. Gifting Strategies There are a number of gifting strategies available for planned giving. As you consider the following list of gifting strategies, you'll find that each has its unique advantages and disadvantages. • Outright Gift: An outright gift is deductible for income taxes, but the giver no longer retains any interest in the gift. • Charitable Lead Trust: Rather than making an outright gift, you might choose to use a charitable trust, which places your gift in a trust and offers you a current income tax deduction. The recipient of the gift will receive the income from the trust, and upon your death your heirs will receive the principal with little or no estate tax. Keep in mind, however, that the transfer of the assets is irrevocable and the donor gives up the use of the income for the life of the trust. • Pooled Income Fund: This strategy lets you retain an income interest in your gift, as well as an income tax deduction. You continue to receive the income generated by your gift, and the recipient receives the principal upon your death. The downside is that the income is unpredictable from year to year and income received is taxed as ordinary income. • Charitable Remainder Unitrust: Similar to a pooled income fund, a charitable remainder trust lets you retain an income interest in your gift, along with a current income tax deduction. Additionally, it avoids capital gains tax on the appreciated property and reduces future estate taxes. Keep in mind that the income is unpredictable, setup is complex, and a qualified appraisal is usually required. • Charitable Remainder Annuity Fund: This strategy is very much like a charitable remainder trust, with two very important differences: The advantage is that the income received is fixed rather than variable. The disadvantage is that fixed payment cannot be limited to the net amount of the trust income. • Gifts Of Insurance: An insurance gift is a life insurance policy that names the charitable organization as the owner and the beneficiary of the policy. This allows you to make a large future gift at a potentially low current cost. Remember, however, that this gift may require annual premiums, and in some cases the death benefit could be part of the donor's taxable estate. How The IRS Looks At Charitable Giving Today, more and more tax filers are itemizing their deductions to take advantage of charitable contributions made to qualified organizations. The I.R.S. imposes strict limits and requirements on charitable contributions, however, so be prepared to furnish documentation on donations of less than $250. Donations of $250 or more must be acknowledged in writing by the charitable organization. Non-cash gifts of more than $5,000 usually require a qualified appraisal. The American Institute of Philanthropy (AIP) offers these tips for giving wisely: • Know your charity. • Find out where your dollars go. • Do not respond to pressure. • Keep records of your donations. • "Tax exempt" doesn't mean always "tax deductible." • Do not be misled by a charity's familiar-sounding name. • Do not be enticed by overly emotional appeals. • Ask if the charity is registered appropriately. • Beware of charities offering gifts. • Consider giving generously. Reprinted by permission of the American Institute of Philanthropy (AIP). You can find out more about specific charitable organizations by visiting AIP's web site at www.charitywatch.org or by calling 301-913-5200. Tower Square Securities does not provide legal advice or services. Please contact a qualified professional for legal advice or services. |
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