Estate Planning - Gifts From the Heart

"Use it or lose it" is a phrase you May hear if you work for a large corporation or perhaps a government agency. It normally applies to your vacation time or annual leave -- that is, if you fail to use it before certain deadlines, it is automatically deducted, i.e. lost forever No one says, "thank you," it's just gone.

However, I heard this phrase applied by an accountant in a different context. In looking into estate planning, he told me to "use my assets or risk losing them to Uncle Sam when I die." Again, no one says "thank you," just make sure your heirs are prepared to step up and pay the Internal Revenue Service (cash not only "preferred," it is demanded). Incidentally, if your estate exceeds $650,000, federal estate taxes can range up to a high of 55%, not to mention the possibility of additional state taxes.

So I have bought into the idea of giving away some of my stuff' to charities and related organizations that are close to my heart... dare I admit that the IRS is not notably close to my heart? In this instance, I have MAFFI in mind.

Of course, it would be simple just to write MAFFI a check and be done with it. But right now, I need most of what I have, so alternative and longer term arrangements are decidedly more appropriate. One thing I did learn is that if I have something that has decreased in value, such as stock, it is better to sell it myself, take a deduction for the loss on my income tax, and then donate the proceeds if I wish. But on the other hand, if I have something that has increased in value, it is generally more advantageous to donate the item to a tax-free organization such as MAFFI. In that case, I not only get a tax credit for the current value of the asset (not the lessor value of what I paid for it), but also I can take a deduction for that full value off my income taxes. So far, so good.

But what if I am considering the donation of the value of my IRA or other retirement account? In that case, I might make an outright charitable donation of my IRA, or perhaps make MAFFI the beneficiary of the IRA or at least a contingent beneficiary. Alternatively, perhaps a Charitable Remainder Trust would be best. It could provide income for my spouse for her lifetime with the final value going to MAFFI after both of us are gone. Mutual funds are often able to set up such arrangements. I felt I could look smart by saying that I knew there is no tax on estates passed to a spouse, but my accountant quickly pointed out that this merely postpones the tax, it does not really avoid it.

Then of course, one can write into one's Will such things as a specific disposition ("I give $5,000 to MAFFI"), or perhaps a residuary disposition ("I give 20% of the residue of my estate to MAFFI") or possibly even a contingent disposition ("I give $5,000 to my sister, but if she predeceases me, I direct that the $5,000 be paid to MAFFI").

With so many apparent possibilities, and the sometimes unfamiliar names associated with them, almost anyone can begin to feel both confused and perhaps even a bit suspicious. So taking any action at all often gets postponed... not because there is any lack of desire, but more because of inertia fueled by an undercurrent of intimidation.

However, the correct course of action is really quite straightforward:

Fire up your Model A, and drive your spouse down to visit someone with expertise in estate planning.

It could be a banker, lawyer, insurer, accountant, estate planner, financial planner, or just a knowledgeable person you know and trust... whatever. The MOST IMPORTANT step is to seek appropriate help and do it soon! Make sure you end up giving from the heart and not allowing Uncle Sam to dictate what happens to much of what you have worked a lifetime to preserve for future generations.

Howard A. Minners