Newton One Advisors

Estate Planning

We are committed to working with our clients to help them determine their long-term personal financial goals. In addition we work with our clients in structuring their estate assets with a goal of minimizing tax liabilities and maximizing value to future generations. Our professional team will work with your attorney and accountant to develop a plan of action and legal documentation. We will coordinate all of this with your insurance contracts to provide a sound workable plan. Periodically, we will review your plan to see if we are moving towards accomplishing your long-term objectives.

Gifting

Gifts are money and property that you give to an individual or charity. Gifting can help reduce the size of your estate and minimize your estate taxes. You can give anyone you choose a tax-free gift of cash or property worth up to $12,000 (for 2008, as indexed for inflation). If you and your spouse use gift splitting, the tax-free amount may be increased to $24,000 (for 2008, as indexed for inflation). In addition to annual exclusion gifts, an individual may be able to gift a lifetime amount of $1 million; $2 million if gift splitting is used.

Gifts may be given outright to individuals or in a trust. You can establish custodial accounts for your children through The Uniform Gifts to Minors Act or The Uniform Transfer to Minors Act. Another type is the qualified transfer, which can be used for making special gifts such as paying for someone's education or medical bills. A qualified domestic trust also may be used when you are giving to a spouse who is not a U.S. citizen.

Making gifts may be a consideration at any time, whether you're developing a financial plan or reconsidering the one you have. Gifting is especially important in the estate planning process.

Trusts

Trusts serve a variety of purposes. Some are created to hold, manage and distribute property. Others are created to avoid probate or save on taxes.

A trust often makes sound financial sense as it can help ease the burden of managing your assets (including your investment portfolio), even after disability or death. A trust may also contain provisions for the care of your children in the way you choose. It can help simplify the administration of your estate's assets (including the regular payment of taxes) and strengthen your beneficiary's claim to disputed property. A trust creates a legal arrangement between the person who establishes it (the creator or grantor), the manager of the trust's assets (the trustee) and the person or organization that benefits from the trust (the beneficiary). It can be established in one of two ways:

• Testamentary, which is created by your will, funded by your estate and administered by a trustee named in your will.
• Inter vivos (or living), meaning that it is created while you are alive and usually set up to manage assets or transfer property outside the probate process. It may or may not have tax advantages and can be either revocable or irrevocable. A trust gives you control of the trust's income and enables the transfer of property to your beneficiaries. Setting up a trust can be done at any time. It is often one of the legal arrangements considered during the financial planning process. If you don't already have a plan developed, contact a financial advisor to help get you started. To create a trust, you will need to contact a lawyer.

Living Will

A living will is used to specify the degree of medical treatment that you would want should you become terminally ill or permanently unconscious. It makes your health care wishes clear to your family, friends and doctors — ensuring that those wishes are carried out. In addition, it eases the burden on your loved ones who might otherwise have to make serious decisions for you.

Although a living will can be drawn up without the help of a lawyer, your wishes still need to be authorized. You can do this by naming a health care proxy  - a person you authorize to make decisions regarding your treatment. You also may grant a durable power of attorney to someone who, like the proxy, then has the power to make the health care decisions you want. If you feel strongly about the kind of medical care you would or wouldn't want to receive should you fall gravely ill, you should draft a living will as soon as possible.

To get started, put your wishes on paper. If you are already working with a lawyer to draft a will, you should consider drafting a living will at the same time.

Wills

A will is a legal document that specifies who will get your property when you die. It names the people you want to settle your estate and administer any trusts you have established as part of your will. It also names the individuals you want to care for any children you have.

By executing a will, you maintain some control over the disposition of your property after your death. Generally estates can be settled faster, easier and with less expense with a will than without one. If you have a large estate, drawing up a will in combination with one or more trusts can help limit the tax liability of your estate.

Executed properly, a will also can enable you to transfer property and investments to your heirs. Wills requiring complex estate planning strategies, including trusts, are best prepared with the help of your lawyer.

If you die intestate, or without a will, you lose control over your estate. Although your property will most likely go to your spouse and children, different states have different ways of dividing estates, which may affect the outcome.

If you are creating a financial or estate plan, it makes sense to establish a will as part of the planning process. Assistance from a lawyer familiar with wills and estate planning is considered the best way; in fact, some states require it. In any case, your will must include your signature and those of two or more people who witness your signing of the document. Witnesses cannot be beneficiaries of your will.

Estate Tax Transfer

Property transfers are taxed on the fair market value of the property at the time the transfer occurs. With a few exceptions and exemptions, the lifetime transfers are combined with transfers occurring at death and are subject to graduated tax rates ranging up to 45%. Here are the key exceptions you should be aware of:

• The annual gift tax exclusion allows every individual to transfer, as a tax-free gift, up to $12,000 per year per recipient. There is no limit on the number of recipient. To qualify, the gift must be considered at "present interest." The $12,000 figure (and $24,000 for split gifts by a married couple) is indexed for inflation in future years.
• Effective with the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) in 2001, the gift tax exemption was frozen at $1 million for lifetime transfers. However, at death the exemption is currently $2 million (2007) and will increase in 2009. In 2010, there is no estate tax and in 2011 the exemption equivalent goes back to $1 million. In addition, the maximum tax rate will reduce through 2009.
• The marital deduction allows transfers between spouses, during lifetime or at death, that do not incur transfer taxes as long as the spouse is a U.S. citizen. Using a marital deduction, however, does not eliminate transfer taxation, it simply defers it. Careful planning can help you avoid the shifting of assets into a higher transfer tax bracket.
• The charitable deduction lets you make transfers to qualified charities, providing a deduction from the estate and gift transfer tax system. Techniques are available that combine the tax advantages of charitable giving with the natural desire to provide for family members.
• Life insurance is subject to a special rule for property transfers. If a person gives away a life insurance policy, he or she must live three years after the transfer has been made. Otherwise the entire death benefit of the policy is included in the gross estate of the donor/insured.

Generation-skipping transfer tax

This tax is in addition to estate and gift taxes, and hits transactions that skip generations (e.g., when grandparents gift assets directly to grandchildren). Each grandparent is entitled to a $2 million exemption in 2007 from this tax, with scheduled increases in future years, however tax rules for such transactions are complex and poor planning may result in the amount of tax exceeding the value of the transferred asset.

Business valuation

A company's value is often a tax challenge between the IRS and business owners. The IRS obviously wants to set a company's value as high as possible to generate the highest tax revenue.

You can anticipate this situation by estimating now, within your succession plan, a bona fide value of your company. "Fair market value" is defined as "the amount a willing buyer would pay to a willing seller with neither being under any compulsion to conclude the transaction." You can determine your company's fair market value by doing market value research through an independent appraisal.

 

 

 

This material is intended for informational purposes and should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney, tax advisor or plan provider.