“Right now the estate tax has been phased out. But this is not likely to last. President Obama has indicated that he intends to bring back the estate tax for estates larger than $3.5 million.. Any amount greater than that will be taxed at rates up to 55%. A lot of American Baby Boomers will have assets well in excess of this amount after a lifetime of hard work. With the right investment products, your estate can manage the money your beneficiaries receive over their lifetime. Charitable trusts let you donate your assets to the IRS-approved charity of your choice when you die.”
- Harry S. Dent, Jr.

You cannot afford to ignore estate planning.

Estate planning offers both the greatest complexity to investors and the greatest potential gains. However, many of us who became wealthy on our own, or who have successfully managed money throughout our lives, imagine that we can also plan how to pass on our wealth. Or, we may simply avoid thinking about our own death and its effect on our families and not plan at all. Either choice can result in fruitlessly giving up what we have worked so hard to create.

HS Dent strongly urges you to seek expert financial advice on this topic for one reason, if no other: Estate taxes represent the greatest of all tax penalties. Wouldn’t you rather designate your own beneficiaries, such as your children, grandchildren, or charitable causes, than have the government spend it?

Estate planning is a complex subject, but we’d like to point out just a few ways that you can pass along your wealth.

The simplest method is to give up to $13,000 per year to each family member or heir. If you are married, each spouse can give this amount tax-free, thereby doubling the gifting to $26,000 per year.

A second option is to purchase variable life insurance policies that allow you to invest in higher-return equities or other investments to create a growing death benefit that will pass to your heirs tax free. We recommend both variable annuities and variable universal life insurance . To avoid estate taxes, the title to this death benefit must pass through a trust. That’s why it is extremely important to structure your estate properly with the help of a financial advisor.

If you are concerned that your heirs may squander a sudden, large inheritance, you can set up life insurance trusts to distribute the income over their lifetime or for purposes that you designate.

Many people aren’t aware that they can pass on the tax-deferred benefits of an IRA to their heirs. Here’s how it works.

You can begin withdrawing money from your IRA, without penalties, at age 59 1/2 but you must begin withdrawing funds beginning at age 70 1/2. Furthermore, the annual amount you must withdraw starting at that age is commensurate with your life expectancy. For instance, if at age 70 your life expectancy is 86, then you must withdraw 1/16^th of the full amount of the IRA each year after age 70 1/2.

By using a trust to convey the value of the IRA all or in part to a beneficiary, their life expectancy will be factored in to calculate the withdrawal amount. For example, suppose you convey the entire value of the IRA to one of your children whose life expectancy is 40 years. The retirement plan would then distribute 1/40^th of the funds each year, and not 1/16^th, which would magnify the effects of income and tax deferral.

Another option is setting up a charitable remainder trust. You donate assets to a trust that is designated to go to the IRS-approved charity of your choice when you die. The trust can invest your assets to generate a growing value over your lifetime, from which it pays you an income. Furthermore, you also receive a tax deduction for the estimated value of the gifted asset, which you can invest now for compounded returns over time.

Perhaps the ultimate strategy for preserving your wealth and contributing to the causes you value most is to start a charitable foundation.