Most of us are pretty careful about providing for our present needs and protecting the things we value. We insure our homes, our cars, our possessions — in some cases even our incomes. We set aside assets to help our children with college expenses, and later, to provide ourselves with a retirement income.
But despite all this important planning, one major financial question continues to go unanswered year after year. Should the government decide how the estate taxes that each of us is likely to owe are used, or should we be the ones making that decision?
While we are alive, the government allows us to use our assets in any way we see fit. But this can give us a false sense of security, because if our estate exceeds $1.5 million in 2005, anywhere from 37 percent to 48 percent of its value already belongs to the government.
Whether the money comes from insurance proceeds or the sale of an asset is not the government’s concern. The money is going to be collected. But what so many of us don’t realize is we can decide how the government’s share of our assets will be distributed when we die if we make our wishes known.
We first have to consider the alternatives. The one that requires the least thought and effort is to let the government decide, and our estate taxes will be spent on such things as the national debt, repairing highways and bridges, and welfare.
A second alternative is to make the decision ourselves. If we do this, our estate taxes can be spent in any number of ways, such as supporting organizations that are important to us, funding hospitals and foundations, endowing colleges and universities or helping out a favorite charity. We can even direct that our tax dollars be used to benefit our friends and neighbors, because bequests to local organizations often qualify as tax deductions.
There are numerous trusts, charitable-giving strategies and ways to bequeath assets that have the added bonus of simultaneously:
- reducing estate-tax liability
- sheltering assets from creditors
- providing the retirement income needed to maintain our standard of living
- rewarding a favorite charity with a tax-advantaged gift
At the same time, these varying solutions can help us:
- avoid depletion of assets, should we require long-term nursing home care
- make sure assets are distributed according to our wishes after we die
Through the use of trusts and other strategies, individuals can gain tremendous flexibility in creating plans that satisfy their needs and provide for the needs of their heirs. But even after utilizing some of these strategies, there will still be a tax to pay. There is also an entire array of charitable giving strategies, including the charitable remainder trust.
Charitable remainder trusts enable individuals to simultaneously make a charitable gift, enjoy a tax deduction, remove taxable assets from their estate, and generate an income for themselves, their families or anyone else they choose.
There are a number of ways to begin this process. An adviser who specializes in planned giving and estate taxation can help you determine your current and future income needs, as well as how to make sure your estate is distributed as you wish. Of course, you should consult with your tax and legal advisers before implementing any specific strategies.
We all have a unique opportunity to decide how our assets will benefit others, both while we’re living and after we’ve passed on. But we also have a chance to determine how what we will owe in taxes is used. Isn’t it a decision better made by us than left to Uncle Sam?
Jan Bell is owner of Bell & Associates Planning in Atlanta, an affiliate of National Financial Services Group. Her planning strategies focus on the conservation of assets for present and future generations through business and estate planning. Reach her at (770) 399-0417 or [email protected].
