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Perpetuating Prosperity

     The number of “millionaires next door” in this country is nothing short of staggering. In 1998, there were 2.5 million households with more than $1 million in investable assets. By the year 2003, that number is projected to reach 3.5 million. Amid this unprecedented prosperity, the single wealthiest generation is preparing to transfer an estimated $7 to $10 trillion dollars to its heirs. 
     What will become of this wealth? How much will be confiscated by death taxes? Will the heirs squander their inheritance or perhaps lose it to their divorces, lawsuits and bankruptcies? Fortunately, proper Life & Estate Planning can preserve your wealth from death taxes and even perpetuate it for generations.

Death Taxes
     Few Americans accumulate wealth without careful income tax planning each year. If you ignore available tax shelters, deductions and credits, then you only enrich the IRS…and shortchange your own net worth. Remember: It’s not how much you make that counts, rather it’s how much you keep.
     Even if you engage in sophisticated income tax planning, your lifetime tax savings can be wiped out by death taxes later on. Under current law, each taxpayer may shelter an applicable exemption equivalent of $675,000 (scheduled to increase to $1 million by 2006) in assets from death taxes. Married couples may protect twice this applicable exemption equivalent, or $1.35 million, but only through careful planning. 
     Too many married couples unknowingly forfeit the full protection from death taxes available to them under the Internal Revenue Code. This mistake can be costly because the tax rates on estates exceeding $675,000 range from 37% to 55%. For example, a married couple with a $1.35 million estate may lose over $200,000 to the IRS in unnecessary death taxes. Whether you are single or married, your Life & Estate Plan should include estate tax planning.

Inheritance Protection
     Assuming your hard-earned assets escape unnecessary death taxes through proper planning, all may be for naught unless you protect the inheritance both from your heirs and for your heirs. First, no one values the worth of a dollar like the person who earned and paid taxes on it. Second, inherited wealth has tendency to attract problems, especially if that inheritance remains unprotected. 
     Whenever someone lacking financial maturity receives an inheritance, it is good news for sports car (usually red in color) salespeople, travel agents and high-end electronics dealers. Is that how you want your hard-earned wealth consumed? Even worse is the potential damage to your heirs. Andrew Carnegie, one of the wealthiest industrialists of the late 19th century observed that “[t]he parent who leaves his son enormous wealth generally deadens the talents and energies of the son.”
     Inherited wealth tends to attract problems like steel to a magnet. Couples that can weather financial poverty may divorce over financial prosperity. Suing deep pocket defendants has become almost a national past-time in our court system. The past, present or future creditors of your heirs will look to your wealth for financial satisfaction. While divorces, lawsuits and bankruptcies can strike any family at any time, proper inheritance protection planning may prevent your wealth from being taken. 

Discretionary Trusts
     When your wealth is distributed to your heirs either outright or in chunks (e.g. different percentages or fractional shares distributed outright at specified ages), it may be lost to any of the problems discussed above. Whether created under your Last Will & Testament or your Revocable Living Trust, a Discretionary Trust may protect your wealth for and from your heirs. Generally speaking, under a Discretionary Trust a Trustee of your own selection administers and distributes your wealth for your heirs. The terms of the arrangement can be loosely or tightly drafted depending on the degree of inheritance protection you want. In addition to protecting the inheritance for and from your heirs, you may include valuable Generation-Skipping Transfer Tax provisions to exempt up to $1,030,000 of your wealth from another round of death taxes in the estates of your heirs. 

Summary
     This has been a brief, general overview of an extremely complex topic. Qualified legal counsel should be sought to evaluate your options to perpetuate your prosperity.

Copyright © 2005 Integrity Marketing Solutions. All rights reserved. Some artwork provided under license agreement. This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.