FOCUS ON TAXES AND PLANNING: Estate planning leaves more for family & charity

ORIGINALLY WRITTEN DON RATZLAFF
When a person works hard through life to build a nest egg of assets with the hope of passing some or all of it on to loved ones, the last thing he or she wants is to have Uncle Sam and the IRS take half of it away when the person dies.


And yet, according to area financial advisers, many people are in that precise situation if they have not taken the initiative to plan for the protection and distribution of their assets through estate planning.


If people don’t have a plan in place, says Andy Shewey of American Express Financial Advisors, Inc., of Hillsboro, they better be prepared for the economic consequences-for themselves and those they love.


“The long-term impact, essentially, is that more money could end up going to the government in the form of estate taxes and inheritances taxes than what they really prefer,” Shewey said.


“The other long-term impact is that the family members who are still alive can be left with a lot of work cleaning up issues that exist because they weren’t dealt with by mom and dad-or whoever has the money,” he said.


Jim LaBelle of Jim’s Accounting and Tax Service in Marion agrees.


“Planning ahead doesn’t diminish your money, except in rare cases,” he said. “But it also protects your loved ones from a horrible price tag on your estate when you die.”


An estate tax is required if the gross estate, valued on the date of death, plus taxable lifetime gifts exceed the exclusion amount for the year of death.


For 2001, the exclusion amount is $675,000 with the final cap increasing to $1 million by 2008 (see exclusion chart below).


The exclusion amount applies to each individual.


“If you’re a husband and wife, that essentially means you have the ability to pass on double that amount, or $1.35 million (given the exclusion for 2001),” Shewey said.


Diane Claassen of Claassen Financial Services, Hillsboro, says changes may be in the works in regard to estate taxes.


“In addition to changing the exclusion chart, President-elect Bush is proposing changes to eliminate the estate tax requirement for most taxpayers,” she said.


But there’s a hitch, she adds.


“The President-elect’s proposal sounds good, but may include the elimination of the step-up in basis that the beneficiary currently gets when receiving an inheritance of property,” Claassen said. “This means the beneficiary’s basis would remain the same of the decedent’s basis.”


Claassen said it is too early to know if Bush will push for changes. If it happens, be prepared.


“Everybody will be renewing their trusts and wills,” she said. “It’s a real challenge for financial planners, the attorneys and the insurance industry.”


Regardless, Claassen strongly recommends that people with significant assets arrange for an annual review with a professional.


“Because of the changing estate tax laws and proposals, people need to be checking annually with their attorneys and financial planners to be sure that their documents are current,” she said.


Using knowledgeable professionals is important, even though it may cost money to cover the fees.


“There’s a lot of people who pursue these things independently,” Shewey said. “They’ll use their ‘how-to’ books and so forth. But I certainly recommend that a person tie into somebody who knows how to do estate planning right.


“A good team would involve an estate-planning attorney, an accountant/CPA and a financial adviser,” he said. “It should be a team approach if you have those people available to you.”


Credible tax and financial advisers will refer a client to a more knowledgeable source if an estate plan becomes complicated, LaBelle said.


“I refuse to do something that would cost my clients later,” he said.


Shewey said estate planning in some shape or form isn’t just for people with huge estates.


“If you own assets, if you have children, if you expect to accumulate money over a period of time that puts you into a positive net worth position, you ought to look at some level of planning-whether it ends up being a simply will or ultimately a charitable trust agreement for people who are charitable minded and want to do some specific estate planning.”

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