By: Kevin J. Smith
You may have what it takes to accumulate money, but
when it comes to preserving your wealth, do you know where to begin? Maybe
you are too busy making current financial decisions, or you may prefer not
to think about the future. Don't be like many wealthy investors who fail
to take an active role in protecting their assets from estate taxes, which
can claim up to 55% of an estate's value.
A recent survey by Richard Day Research, Inc., found
that people often aren't familiar with estate-planning tools -- or even
with the need for planning. Individuals who have accumulated significant
assets in their retirement accounts and own personal residences that have
appreciated in value may not realize they have estates that need to be
managed.
How Bad Is It?
Part of planning for the future of your estate involves
staying up-to-date with tax laws that affect your assets. Many wealthy
investors involved in the survey were unaware of vital tax laws that have
major impacts on their overall estate plans.
Eighty percent of the respondents couldn't say how
large an estate must be before it would be subject to federal taxes. For
2002, the unified credit exclusion allows $1 million, rising incrementally
until the tax is repealed in 2010, in assets to avoid federal estate and
gift taxes. Even with these increases, many people will accumulate estates
that are subject to estate taxes. After all, it is not just cash and
investments that make up your estate. Your residence, artwork, jewelry and
cars are also included in the overall value of your estate. Life insurance
death benefits are also included in one's estate if the policy was owned
by the decedent.
According to the same survey, more than three out of
five people didn't know that the maximum gift an individual can give to
another person each year without having to pay federal gift tax is $11,000
($22,000 if your spouse joins in the gift). You can give this amount to as
many people as you choose and pay no taxes on the gifts. Giving gifts and
gift splitting can be an effective estate planning tool for many families.
And, despite its potential for tax savings, the
majority of individuals in the survey could not cite any specific benefits
of transferring assets to a trust. The variety of trusts available makes
them flexible estate planning vehicles.
Catching up with Estate Planning
Estate planning can seem like a daunting task; but if
you work with a qualified financial professional whom you trust, the
process can be straightforward and reassuring. It is also important to
review your estate plan periodically because of shifting estate values and
changing tax laws. Once your estate plan is in order, you can feel
confident about the future of your assets.
Kevin J Smith is a Financial Advisor and Accredited Asset Management
Specialist with Legg Mason Wood Walker, Inc., a securities brokerage and
financial servicesfirm and member of the New York Stock Exchange, Inc. and
SIPC