Financial Focus
Start planning now to
cope with estate taxes
Throughout your life, you strive owned a $1 million dollar life in- could add to your heirs’ estate tax
to provide financial security to surance policy, and it was subject burden. But you could remove the
your family. And your efforts can to an estate tax rate of 45 percent, stocks from your taxable estate by
extend beyond your lifetime — if your beneficiaries would receive a placing them in a charitable re-
you work to control estate taxes. death benefit of just $550,000. But mainder trust. Furthermore, you
It’s always challenging to create if you established an irrevocable could receive an income stream for
financial strategies that are some- life insurance trust (ILIT) with life once the trust sold the stocks.
what dependent on tax laws, be- a new insurance policy, the trust You could then use this income
cause these laws are always chang- would own the policy and distrib- to make gifts to your loved ones,
ing. In 2009, your estate could ute the proceeds to the beneficia- further reducing the size of your
have passed up to $3.5 million to ries you’ve chosen. By using an taxable estate. You can give up to
your heirs before incurring federal ILIT, you’d keep the life insurance $13,000 per year to as many indi-
estate taxes at a maximum rate of out of your taxable estate. viduals as you like without incur-
45 percent. In 2010, the estate tax Another estate planning consid- ring gift taxes, up to $1 million
was scheduled to be repealed, but eration is a charitable remainder over your lifetime.
in 2011, it was supposed to return, trust, which might be useful if you Before making any decisions re-
with a maximum exemption of $1 have a sizable amount of assets, such lated to estate taxes, consult with
million and a top rate of 55 per- as stocks, that have significantly your estate planning professional
cent. But this may change, as Con- appreciated since you bought them. and your tax advisor. Vehicles such
gress is considering extending the If you kept these assets in your es- as life insurance trusts and chari-
2009 exemption and tax rate fig- tate, your heirs would inherit them table trusts are complex and don’t
ures into 2010, 2011 and possibly on a “stepped-up” basis, which, in lend themselves to “do-it-yourself”
even further. plain English, means the value of solutions.
You might think you’ll never the stocks would be the same as Start thinking soon about estate
have enough wealth to incur these their fair market value on the date tax issues. By putting your estate
taxes, but virtually every asset — of your death. (However, in 2010 plans in order early, you could be
your home, cars, life insurance — and 2010 only — the step-up helping your loved ones far into
policy, IRA and 401(k) — may basis is limited to $1.3 million for the future.
be included in your taxable estate. your children or other heirs and $3
These assets could push your estate million for your surviving spouse. This article was written by Ed-
over the exemption amount, cost- Beyond those figures, your heirs ward Jones for use by Bill Bough-
ing your heirs a substantial amount would assume, or carry over, your ton, Weaverville’s local Edward
in estate taxes. basis — the amount you paid for Jones Financial Advisor. Ed-
To help address this potential the assets. In 2011, full step-up is ward Jones, its employees and
problem, you might want to think scheduled to return.) financial advisors are not estate
about some of the following estate All stocks, and especially those planners and cannot provide tax
considerations. For example, if you that receive step-up treatment, or legal advice.
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December 31, 2009 - January 6, 2010 - THE TRIBUNE 21
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