While basic estate planning is important for all of us, Kansas residents who have been prosperous and successful in creating a strong financial footing for themselves and their families, legacy planning is even more important. Without it, your hard work may be in vain. Legacy planning is necessary for preserving a family’s wealth using such as wills, powers of attorney, living trusts and other basic estate planning tools, as well as more advanced tools like Family Limited Partnerships and Charitable Gifting Strategies.
Basic legal issues to address in your legacy planning
While there are numerous legal issues that should be considered when establishing a legacy wealth plan, there are a few common issues that you should at least be familiar with, including estate taxes, asset protection, and charitable donations. Your estate planning attorney can help you with other less common issues that may apply to your situation.
Minimizing estate taxes
Though most estates are not required to pay federal estate or gift taxes, if you have amassed a great deal of wealth, you might. As of 2016, the estate tax exemption amount is $5.45 million. That means, unless your total estate exceeds $5.45 million, you will not owe any estate taxes upon your death.
Now, if your estate does exceed that amount, you could be taxed at 40%, which means less money for your heirs to receive. Proper legacy planning can reduce the amount of your estate taxes. It is important to remember that all of the taxable gifts you made during your lifetime will also reduce the amount of your personal exemption. That is because the estate tax and gift tax exemptions are combined to form the unified tax credit.
Making use of the marital deduction
Married couples are entitled to another very valuable tax deduction. This marital deduction allows spouses to transfer property to one another either during their lifetime or upon their death, without incurring federal estate or gift taxes. The amount of the marital deduction is unlimited. This deduction benefits the first spouse to die, as the value of the assets passing to the surviving spouse can be deducted from the gross estate of the deceased spouse. This eliminates estate taxes for the deceased spouse.
Including asset protection in your legacy plan
Asset protection planning basically means protecting your assets from claims made by creditors by situating them out of reach within the bounds of the law. It is important to remember with asset protection that there are also laws that protect creditors from debt avoidance. The key is that your asset protection plan needs to be in place before legal claims or judgments are obtained by creditors. That way, the transferring of your assets will not appear to be an attempt to defraud your creditors.
Timing is key!
In other words, it is likely too late to start an asset protection plan if the threat of a legal judgment has already been made. Once you have a good idea of your financial goals, a legacy planning attorney can help you figure out which assets are not exempt from creditors, so they can be repositioned for the best protection possible.
The role of charitable donations in legacy planning
While making donations to charitable organizations can be personally rewarding, there are also many tax advantages you can also enjoy. The federal government, seeking to encourage philanthropy, created several tax deductions for donations made to qualified charities. It is wise to include charitable giving in your legacy wealth plan, as well, so you and your family can reap the benefits of giving.
How you choose to give is very important
Notwithstanding the tax advantages of making donations to charity, there are specific situations that must be considered when you plan how to give, as part of your legacy plan. Particularly, how you choose to give can be significant. Whether you give a specific dollar amount to charity or a percentage of your overall estate can have a significant effect on the amount your heirs will ultimately inherit.
Planning your charitable donations
There are many ways to go about leaving charitable donations. For instance, charitable trusts give you a way to use the same pool of assets for your heirs as well as the charities of your choice. Charitable Remainder Trusts allow you to set up an annual distribution of a specific amount to one or more beneficiaries, at least one of which is not a charity.
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If you have questions regarding legacy planning or any other estate planning matters, contact Gaughan & Connealy for a consultation either online or by calling us at (913) 262-2000.