Benjamin Franklin said many years ago, “Nothing is certain but death and taxes.”
In 2010, this certainty has not been proven as it relates to estate taxes through the present.
If Congress does not pass a law changing the estate tax, the one-year reprieve from estate taxes will end and the size of taxable estates is set to return to the 2000 level, where assets greater than $1 million per individual will be taxable at death.
Many Americans, even with the present downturn in the economy, will have taxable estates in 2011. Unless Congress passes changes, a number as high as $3.5 million per individual has been cited.
In 2011, America’s wealthiest families will be looking for ways to reduce estate taxes. By giving to a qualified 501(c)(3) charity at their death, which approximately 80 percent of Americans do at some point during their lives, individuals can reduce or eliminate estate taxes.
However, some statistics show that as few as 20 percent of individuals with taxable estates include charities in their estate plans (source: www.leavealegacy.org). Charitable giving not only allows tax reduction, it further permits people to benefit society and pass on their values.
Gifts can be made in several ways. The simplest method to give is through a gift or a bequest, which excludes these assets from a person’s estate.
In estate planning, people often overlook their retirement assets since they generally have designated beneficiaries. When these assets are transferred to family members, they are responsible for not only estate taxes, but also income taxes. But retirement assets transfer tax free to charities.
Another way to structure gifts is by using charitable trusts that allow up-front tax deduction while removing assets from an estate. By placing assets into a charitable remainder trust, a family receives an income stream for its lifetime with the remaining assets going to charity. Another option is a charitable lead trust, where a charity receives an income stream for a designated period with the remaining assets going back to the donor’s family or other designees.
Another alternative to consider is the use of a family or community foundation. Family foundations, although generally more work than the other alternatives discussed, allow their creator to truly pass on their beliefs and values to their family.
Heidi Foster, Wealth Advisor and Investment Manager with American Wealth Management and may be reached at 775.332.7000 or heidi@ﬁnancialhealth.com. Securities offered through Foothill Securities, Inc. member FINRA / SIPC. Investment advice offered through American Wealth Management, a registered investment advisor and a separate entity from Foothill Securities, Inc. This information should not be construed as investment, tax or legal advice. The author is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.
The Reno Gazette Journal featured this article written by Heidi Foster in June of 2010.