Estate Planning Means More Than Money
Almost everyone knows the first names of both of their parents. And most people know the first names of their four grandparents. But unless they are interested in genealogy, few people know the first names of all eight great-grandparents.
There is a way, however, for your history and values to live on for many generations: You can make a gift to charity that continues giving for years to come. A thoughtful gift in your estate plan can perpetuate your generosity. Your gifts, coupled with those of other donors, will enable your favorite charities to continue their important work.
It’s possible to leave assets to benefit both loved ones and the organizations that have been important in your life. For example, you can create a trust that pays income first to family members before assets are distributed to charity (a charitable remainder trust). You can even fund the trust with the balance in your IRA or other retirement plans and avoid the income tax that would otherwise be due. Another trust pays income first to charity for a period of time and then passes assets on to family members (a charitable lead trust).
A gift in your estate is a way of preserving your life’s values and supporting the organizations you felt were important. Your gift can be earmarked for a particular program or area of interest, allowing you to make a mark that will last long beyond your lifetime.
What a Difference 25 Years Can Make
A lot has changed in the US since 1994:
The population of the US was 263,301,322, compared with an estimated 331,195,364 today.
The most popular names for newborns in 1994 were Michael and Jessica; in 2017 (the most recent year for which Social Security statistics are available) they were Liam and Emma.
The top income tax rate was 39.6% on taxable income of $250,000 or more for married taxpayers; today it is 37% on taxable income above $612,350.
Another big difference is the federal estate tax. The sheltered amount in 1994 was $600,000, with amounts in excess of that subject to tax at rates ranging from 37% to 55%. Today, the estate tax credit shelters estates up to $11.4 million, with a rate of 40% on any excess. Unfortunately, there are still estate plans in existence that were drafted in the 1990s. Although only a few thousand estates per year will be subject to federal estate tax, many of those “old” wills include tax-saving techniques from a higher-tax period.
If your estate plan is from 1994 (or earlier), it’s time for a thorough review. Not only should you look at your will and/or living trust to determine whether the provisions still reflect your current family needs, but you should have your attorney review the plans to see that they make sense in light of tax changes in recent years. If changes are needed to your plans, we ask that you consider adding a thoughtful charitable gift to your will or living trust. There are many creative ways to include a charitable gift that also provides income to family members.
Rules, Rules, Rules
Never swim alone . . . always cross at the intersection . . . don’t text and drive. For the most part, rules exist for a reason, including some important rules governing estate planning.
Rule 1 — Don’t let the state write your will. You are entitled to have a will, living trust and other estate planning documents drafted by your attorney. If you don’t, state law will determine how your estate is distributed, and state rules don’t necessarily follow the pattern that is best for your family situation or for tax savings.
Rule 2 — Don’t include the tax collector in your estate plan. Estates in excess of $11.4 million are subject to federal estate tax; some states have estate and inheritance taxes that affect estates of much lower amounts. Remember that assets left to charity in a will, living trust or beneficiary designation can reduce estate and income taxes. This requires action on your part.
Rule 3 — Your estate gift to charity will help secure our future. Without the generous gifts received over the years, it would not be possible to continue our work. Your bequest is a message that you believe in our efforts and support our goals. It is also a reflection of your thoughtfulness.
Who Gets the Life Insurance?
Locate all your life insurance policies and look at who is named beneficiary. Chances are it’s your spouse or other family members, but if a beneficiary isn’t named, the proceeds will pass to your estate. There are several reasons why you might not want that to happen:
The proceeds could be subject to federal or state estate taxes;
Creditors of your estate would have access to the funds;
Probate fees could be increased;
There could be a delay in distributing the proceeds until the administration of your estate is complete.
Make sure you’ve named a beneficiary for the insurance proceeds. Keep in mind that you can name charity as a primary or contingent beneficiary in the event that a named beneficiary is no longer alive.