Your Money: Planning your estate

Your Money: Planning your estate

By Juergen Selk

By Juergen Selk

Financial Consultant

Your Money

Planning your estate

Every estate is planned–either by you or the government. The estate tax structure can effectively reduce your estate by up to 60 percent. By following these basic steps of estate planning, you can significantly reduce this tax impact.

1) Prepare a will. Be sure it keeps pace with changes in tax laws and your own circumstances. Unfortunately, seven out of 10 Americans die without a will, and consequently, the laws of their states decide the disposition of their assets.

2) Use your Federal Unified Estate and Gift Tax Exclusion. The IRS allows each of us (except nonresident aliens) to pass $650,000 in 1999 to $1 million in 2006 of assets to beneficiaries free of federal estate and gift taxes. Using the applicable exclusion amount during your lifetime can effectively reduce your estate by the value of the gifted property as well as any income earned or subsequent appreciation on the property.

3) Monitor retirement plan assets. Determining the appropriate strategy for dealing with estate and income taxation of these accounts depends on your individual objectives. I recommend that you consult your attorney or tax advisor on this.

4) “Gift away” what you don’t need. Lifetime gifts can not only reduce your estate and subsequent estate tax liability, but also shelter asset appreciation from taxation. You may transfer up to $10,000 per person each year without incurring any gift tax; spouses together may gift up to $20,000 per person. (Additional gifts made directly to educational institutions for tuition or to medical care providers are also excluded from gift tax.)

Gifts to qualified charities may be exempt from gift tax. In addition, these charitable donations may qualify for current income tax deductions.

5) Keep enough assets liquid to satisfy estate taxes. Generally, the IRS demands that any estate tax liability be satisfied within nine months of the date of death. Be sure your heirs aren’t forced to sell investments at the wrong time because of a shortage of liquid funds.

6) Have a trustee of an irrevocable trust purchase your insurance policy. Usually, life insurance proceeds avoid probate and are exempt from income tax. However, they are subject to estate tax if you own or have rights in the policy. Purchasing the policy within an irrevocable trust may prevent life insurance proceeds from increasing your estate tax liability.

Juergen Selk is a financial consultant at Salomon Smith Barney in Rockford. Salomon Smith Barney does not offer tax or legal advice. If you have an investment or finance-related question, send it to The Rock River Times or to!

Enjoy The Rock River Times? Help spread the word!