Strategies and tips Featured

11:04am EDT October 29, 2006
With the right skills and experience, do-it-yourself projects can be rewarding. However, if you don’t have the expertise to do a job, it’s best to rely on professionals.

“Think twice before you undertake estate planning without expert advice,” says Beau Collins, a financial consultant and Chartered Wealth Advisor in the Dublin office of Hilliard Lyons. “Estate planning can be a daunting task, and — even with the best intentions — mistakes can happen. That’s why it’s important to protect your heirs by obtaining expert advice.”

Smart Business talked to Collins about how professional advisers can help business men and women more strategically plan the fate of their estates.

When should a person update an estate plan?
Significant life events call for an estate plan review.

  • Getting married or divorced.

  • Having a child.

  • Moving to a new state.

  • Receiving substantial assets.

  • Starting a business.

  • Changing state or federal tax codes.

  • The death of an executor or beneficiary.

  • A child’s marriage or divorce.

What is the gift-tax annual exclusion?
Current tax law allows you to give away a certain portion of your assets annually without incurring federal gift tax. Gifts can be as much as $12,000 per individual recipient — $24,000 if your spouse joins in the gift giving. The amount you give away is removed from your estate — and thus from the reach of a possible estate tax in the future. There are no limits on the number of recipients or their relationship to you.

For example, suppose you and your spouse decide jointly to give each of your five children $24,000 annually. After five years, you will have bestowed on them a total of $600,000 completely free from gift and estate taxes.

How does a person avoid wasting an estate exemption?
In 2006, up to $2 million in asset transfers is exempt from federal estate tax. This ceiling will rise to $3.5 million in 2009. In 2010, the estate tax is slated to expire. However, unless Congress acts to extend it, the repeal will only be effective for persons who die in 2010. In 2011, the tax will return with a $1million exemption and a top tax rate of 55 percent.

In addition, an unlimited marital deduction allows you to leave any portion of assets to a surviving spouse and avoid federal estate tax. But, by using only the unlimited marital deduction, you’ll lose out on the tax-saving opportunity the exemption amount offers. Thus, your best course of action may be to structure an estate plan to make use of both the exemption and marital deduction, if possible.

How does one protect his or her life insurance proceeds?
If you own an insurance policy on your life (or have any incidents of ownership), the policy proceeds will be included in your taxable estate. You may remove the proceeds from your estate by having another individual, or an irrevocable trust, own the policy. As long as you haven’t transferred the policy within three years of your death, estate tax will be avoided and your beneficiaries may receive the policy’s full value.

Is it smart to transfer appreciating assets before death?
Giving away assets during your lifetime, rather than leaving them to heirs in your will, may substantially lower your overall estate-tax obligation. While you may owe gift tax on their value when transferred (or use up some of your transfer tax credit), the appreciation enjoyed by the assets from the time of your death to the time of the transfer is not taxed. This appreciation will thus be removed from your taxable estate. Because there may be additional tax considerations, plan carefully. You may need help in determining the best strategy for transferring assets to a loved one.

BEAU COLLINS is a financial consultant and Chartered Wealth Advisor in the Dublin office of J.J.B.Hilliard, W.L. Lyons. Reach him at (614) 210-6281 or