By Norman A. Pappas
April 1, 2007
If you were to sit down to plot a financial roadmap
for your estate and your business, there are 10 rules to help you get where you want to go. Here are the first five.
First Commandment: Make sure you have proper wills and trusts
Providing for the distribution of your assets is the key to wealth preservation. Failure to have your documents in order can cause serious problems, not least of which would be excess taxation. In addition, since these documents usually define staged distribution ages to control when children inherit, failure to do so could leave them with large sums of money at a very young age and no management assistance. There is also the poten-tial for divorce or creditor problems. Finally, if you fail to elect trustees, guardians and executors for your estate, strangers will wind up making those decisions for you.
Second Commandment: Make sure your assets are properly titled
There are innumerable problems associated with failing to title your assets to your trusts, including an improper balance of assets between husband and wife; excess capital gains tax when assets are sold; excess estate taxes; probate and creditor exposure.
Third Commandment: Provide security for yourself and your family
Because premature death or disability can disrupt even a carefully laid out estate plan, make sure security is provided to protect against these unexpected losses. Proper life insurance, disability and long term care insurance could help, as will doing everything you can to establish adequate retirement savings.
Fourth Commandment: Make use of annual and lifetime gift exclusions and charitable gifts
Failure to take advantage of the tax code gift exclusions could lead to excess taxes at death and the improper distribution of assets. Allowable gifts to individuals include: $12,000 annual gift per donor, per donee; $1 million lifetime gift exemption; $2 million gift exemption at death; $2 million generation-skipping gift limit. In addition, you are allowed to make gifts to qualified charities. Limits on those are: cash gifts to public foundations which can be up to 50 percent of AGI (Adjusted Gross Income); cash gifts to private foundations which can be up to 30 percent of AGI; gift of appreciated stock up to 30 percent of AGI to public foundations and up to 20 percent to private foundations. For the tax year 2007 only, you can make gifts to charity of up to $100,000 directly from your IRA.
Fifth Commandment: Reduce estate taxes to the minimum allowed by law
There are several instruments to help reduce estate taxes, all of which should be explored to determine whether they are right for your situation. Personal and charitable gifts, Grantor Retained Annuity Trusts, Qualified Personal Residence Trusts, Charitable Remainder Unitrusts or Charitable Lead Annuity Trusts, Defective Grantor Trusts, Family Limited Partnerships and private annuities all offer opportunities to reduce taxes and enhance your legacy.
By taking these first five actions, you are well on your way to your destination. The next issue of Corp! will feature the final five commandments to complete your journey.