Wealth Transfer

Why Create an Estate Plan?
You’ve worked hard over the years and accumulated considerable assets. Enough to live on comfortably and to plan for the futures of those close to you. But without an estate plan, your estate could dwindle as a result of taxes and other wealth transfer costs.
Although estate taxes and probate expenses are a reality, you can drastically reduce them by effective
estate planning and pass on a meaningful legacy to those you care about. This guide will give you a clearer understanding of estate planning — from basic tools to sophisticated planning options. By using this guide and working with your advisors to implement your planning options, you’ll be well on your way to preserving the estate you’ve worked so hard to build.

What is Estate Planning? Effective estate planning will ensure that: • your assets will be managed competently if you become disabled • your estate will be distributed to your beneficiaries, efficiently and economically • you reduce transfer taxes and expenses • you preserve asset values • you leverage lifetime gifts and make maximum use of your available tax exemptions

Wealth Transfer Costs
While you’re establishing your planning goals and
determining how to transfer your assets, you should
keep an eye toward the cost of wealth transfers.
These costs may include:
• Estate, gift, and inheritance taxes
• Income taxes on annuities and retirement assets
• Generation-skipping transfer tax
• Probate costs
• Professional fees

The Economic Growth and Tax Relief Reconciliation
Act of 2001 (“EGTRRA”) has brought some recent
changes to the estate planning landscape.
Although the estate and GST taxes are scheduled to
be repealed in 2010, EGTRRA contains a “sunset
provision” that causes all of the Act’s provisions to
expire after December 31, 2010. Unless Congress and
the President extend the effect of EGTRRA, the estate
tax exemption will return to $1,000,000 per person in
2011 and the top estate, gift, and GST tax rate will
return to 55%.

Other Wealth Transfer Costs May Include:
• Income Taxes on Annuities, IRAs, and Qualified
Retirement Accounts
Like other assets you own at death, qualified plan
accounts, annuities, and IRAs are subject to estate
taxes. However, qualified plan accounts, annuities,
and IRAs are also subject to income taxes after
death. The combination of these taxes can drain
more than 70% of your account balances at death.

Wealth Transfer Planning Through Asset Repositioning
You own a variety of assets and have accumulated significant wealth over the years. While your income may be primarily generated from various sources, including pension plans, non-qualified deferred compensation plans, and social security, you may intend on designating certain other personal assets to both supplement your income and to preserve assets for heirs. In some cases, you may be giving up return to preserve wealth by continually rolling over low-yielding certificates of deposit (CDs), or by maintaining municipal bonds to benefit from the tax-free income they offer. Or, you may be holding a deferred annuity to take advantage of the tax-deferred growth it can provide your heirs. Unfortunately, there are additional taxes at death associated with owning some of these assets. Unknowingly, you may be transferring more of your wealth to the IRS than to heirs. And, you may also believe there are no conservative alternatives.

 The chart below illustrates taxation of certain assets at death, based on current tax law:

The Solution
By using an asset repositioning approach in your wealth transfer plan in which you immediately or systematically replace a deferred annuity, municipal bond portfolio, or other low income-producing asset with more tax-efficient vehicles, you may be able to transfer more to heirs while maintaining or increasing your income.

For more information, please contact your representative or our firm so we may assist you.