10 Strategies for Preserving Personal Wealth
Are you wealthy?
You may not think so, but when you have accounted for your
home, investments, personal property, retirement accounts
and insurance policies, your assets may total more than $1
million-and according to the IRS, that means you are "wealthy."
In 2003, every dollar over $1 million may be subject to estate
taxes, up to 49 percent. If the majority of your assets are
in retirement accounts, including qualified plans and IRAs,
your estate could lose more than two-thirds of its value to
federal estate and income taxes, leaving your beneficiaries
with a much smaller portion of what you worked so hard to
Consider these strategies to help preserve your wealth:
1. Prepare a Will. Be sure it keeps pace with
changes in your personal circumstances and adjustments in
tax laws. Marriage, divorce, birth, a move to another state
or a change in your finances should signal an immediate review
and possible updating of your will.
2. Use the Estate Tax Exclusion. The IRS allows
U.S. citizens to pass the first $1 million of assets in 2003
(incrementally increasing to $3.5 million by 2009) to their
beneficiaries free of federal estate tax. Be sure to plan
so that both spouses take advantage of their estate tax exclusions.
3. Title Assets to Avoid Probate. Holding property
in joint tenancy with the right of survivorship is a simple
way to avoid probate. Going through probate may increase your
estate administration expenses, delay the execution of your
wishes and subject your affairs to unwanted publicity.
4. Monitor Retirement Plan Assets. If you plan
to gift your IRA or qualified plan to heirs at death, either
plan could lose up to two-thirds of its value to federal estate
and income taxes. Consider taking distributions from your
IRA or qualified plan and purchasing a life insurance policy
held in an irrevocable life insurance trust. This allows your
heirs to receive the insurance death benefit free of estate
and income taxes (if the ILIT and plan are properly designed).
5. Gift Away What You Don't Need. Lifetime gifts
to family members or others can reduce your assets and potential
estate tax liability by removing the appreciation on those
assets from your estate. You are entitled to transfer up to
$11,000 (an amount that may be adjusted for inflation) per
person each year without incurring any gift tax or reducing
your lifetime gift tax exclusion amount. (Spouses together
may gift up to $22,000.)
6. Keep Enough Assets Liquid to Satisfy Estate Taxes.
Generally, the IRS requires that any federal estate tax liability
be satisfied within nine months of the date of death, and
that payment must be in cash. There are four typical sources
from which funds can be obtained: cash reserves, loans, liquidation
of assets and life insurance proceeds.
7. Hold Life Insurance in Trust. If properly
owned by a trust or third party, life insurance proceeds are
income tax free to the recipient and not subject to estate
tax. However, the proceeds will be 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.
8. Know What You Have and Where You Have It.
Keep copies of your important papers and make sure that appropriate
parties know where the documents are.
9. Choose Executors and Trustees Wisely. Selecting
one family member among several may create unforeseen problems
down the road. The fiduciary duties may call for the expertise,
impartiality and independence of a corporate trustee, at least
10. Meet with a Financial Consultant. Discuss
your estate planning objectives, concerns and fears with a
financial consultant, as well as an accountant and attorney,
to develop a plan for effectively transferring wealth to your