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Nicholas
P. DiNatale, CPA - News and Featured Articles NO HEIRS? HERE'S
HOW TO KEEP UNCLE SAM FROM YOUR ESTATE After your retirement planning strategy is in place, the second topic addressed by CPAs and financial advisors will be your estate plan. We cannot emphasize enough the importance of estate planning in preserving wealth for your heirs. But what if you don't have any heirs? How do you keep the property you've accumulated from enriching the government's coffers? Fortunately, there are several ways to keep Uncle Sam's hand out of your pocket any more than it already is. But first, lets consider what would likely happen to your assets if you pass away without planning for your estate. First of all, lets realize the fact that you can't take it with you. If you don't spend your wealth or give it away during your lifetime and die without a will, your assets will be distributed according to state law regardless of your wishes. In most states, the probate court will distribute your estate to your next of kin. If you don't have any close family, the courts in many states will try to locate even distant relatives and distribute your assets to them. Of course, any taxes, attorney's fees and court costs for all of this will come right off the top. The federal estate tax alone could be as high as 55 percent, and some states add an inheritance tax to that as well. So you can see that without the proper planning, not only could your estate go to people you don't want to receive it, but well over half of what you do pass along could be assessed for taxes. If you don't believe you have an "estate" that anybody, including the government, would care about, think again; you may have more than you think. If you own a home, investments and a retirement plan, your wealth may have appreciated considerably over the last few years of our booming economy to put your net worth into a potentially taxable position. Your estate includes cash, stocks, bonds, the value of any interests you hold in certain business ventures (for example: your percentage ownership of a real estate partnership), in a nutshell virtually everything you own. This includes the value of any life insurance, vacation properties, vehicles, boats, furniture, jewelry, etc. When you put all of this together, your estate may easily exceed the amount protected by the federal estate tax exemption ($675,000 in 2000 - 2001, rising to $1 million by 2006) so creating an estate plan will likely be worthwhile. Achieving your goals I mentioned previously that you can't take it with you. This is true, but there are several ways to ensure that your assets continue to achieve your objectives, both during and after your lifetime.
Of course, these two options are the extremes and you can always integrate the two to provide an overall result that provides for you while helping to further your charitable interests. In addition, there are options for life insurance integration, trusts and a host of other opportunities. Charitable giving not only gives you pleasure, but also provide estate and income tax benefits as well. You are allowed to gift up to $10,000 (married couples can give $10,000 each, or $20,000) per year to as many people as you want without incurring any gift or estate taxes, (this $10,000 is expected to increase in the future). This gift reduces your estate while avoiding tax to the giftee. The $10,000 is not deductible for income tax purposes unless given to a registered charitable organization. You can freely give to registered charities, however there are certain limits based on your income as to the portion of your contribution that will be deductible for income tax purposes, but your donations are generally not subject to gift or estate taxes. By giving charities appreciated assets such as stocks or mutual fund shares that you've held at least a year, you get an income-tax deduction for their full appreciated value without having to pay tax on the capital gain. Because the tax implications are complex, it is best to consult with your tax advisor before making any large donation decisions. The most important idea you can take away from this is to make your final wishes known. Regardless of the existence of heirs and whether you expect to spend or give away your wealth while you're alive, it's still an important idea to complete a will and perhaps look into trusts and other estate strategies. This way your remaining property will be distributed to your chosen friends and worthy causes with as little delay, legal cost and estate taxes as possible. In closing, if you are left without heirs you are not left without options. Consult with your CPA or financial advisor to discuss what you can do to make sure your wishes are attended to and your accumulated wealth works for you. Daniel L. Gracy Daniel is the principal of Gracy and Associates, a Financial Advisory Branch of American Express Financial Advisors. His offices are conveniently located adjacent to Route 1 in Danvers, Massachusetts. Gracy and Associates specializes in providing personalized financial and estate plans for individuals and small businesses. Gracy and Associates Phone: (978) 777-8382 Back
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