Financial planning is about more than taxes |

Financial planning is about more than taxes

William Creekbaum
For the Appeal

An important idea gets easily lost amidst all the talk about the future of the estate tax: intergenerational financial planning is about more than taxes. To be sure, preserving wealth for your family is a worthy goal.

But creating a comprehensive plan can help you achieve even more. You can efficiently transfer both your assets and your values to future generations, and thus help prepare your loved ones to lead more fulfilling lives.

For now at least, the estate tax remains an important, though unpredictable, planning consideration. In 2006-08, you can leave up to $2 million, tax-free, to your heirs. This estate-tax exclusion is scheduled to increase to $3.5 million in 2009.

Unless Congress repeals the federal estate tax altogether – the House has approved a permanent repeal, but no one knows for certain if legislation will pass the Senate – the tax will disappear completely in 2010, only to reappear the following year with an exclusion amount of $1 million.

One way to plan for the uncertainty is to consider moving assets out of your estate by maximizing your gifting strategy. You can make unlimited, tax-free gifts to a U.S. citizen spouse and to charities, along with tax-free gifts of up to $12,000 per individual to your children and grandchildren (or certain trusts established for their benefit). But before you make any gifting decisions, it’s important to clarify your goals and values, which can guide your broader, intergenerational financial plan.

Create a Family Mission Statement

Begin with taking a look at what’s most important to you when planning transfers. You may find scheduling a weekend retreat to discuss these ideas to be beneficial. Although there’s no “right” answer that comes out of these discussions, many people focus on familial relationships, spiritual beliefs, charitable intentions and the desire to impart a work ethic to their beneficiaries. A “family mission statement” may be derived from these deliberations. This statement can be written out, signed by the family members who share these values and updated every few years.

Draft Legal Estate Planning Documents

It’s important to have in place legal documents that are coordinated with your family mission statement. Without a will to indicate your wishes, a court distributes your property according to the laws of your state. Chances are, the laws may not conform precisely to the wealth transfer strategy you have in mind.

Wills aren’t the only crucial estate planning instruments that individuals tend to ignore. You should meet with an experienced estate planning attorney to discuss your specific needs for documents such as trusts, powers of attorney and directives for medical treatment.

Think About Using Trusts

To some people, the term “trust-fund baby” conjures up images of spoiled children. In reality, a trust may help to instill your values in your children and grandchildren – and prevent them from making undesirable choices.

A trust is an entity created for the purpose of holding certain assets. Because of its flexibility, a well-designed trust can offer many ways to determine how your assets will be used. Distributions to beneficiaries can be set at modest amounts or left to the discretion of the trustee managing the assets. On the other hand, if you make outright bequests, your descendants might go through their inheritances quickly, squandering their money or investing foolishly.

So-called “incentive trusts” have become popular in recent years. They offer rewards to beneficiaries who accomplish certain goals, and financial incentives can be specified for anything you deem important. Beneficiaries might receive particular amounts for completing higher education degrees, running a family business well, attaining pre-set levels of earned income or serving in the community.

Select a Trustee

One trust fund approach is to leave distributions to the discretion of the trustee. The trust might indicate what types of activities will be rewarded, allowing the trustee to make distributions as appropriate. For success with this type of arrangement it is especially important to choose a highly qualified trustee.

Whether it’s a relative, a friend or a professional advisor, any trustee you designate should be able to empathize with your beneficiaries, yet make prudent decisions about trust fund distributions. Moreover, you should include a plan for trustee succession, in case your choice becomes unable or unwilling to serve. For long-term trusts, a qualified institution may provide continuity.

There is no precise formula used to create an intergenerational financial plan. However, given the proper information and guidance, you can create a plan that embodies the goals you have for your loved ones and their future.

For more information, e-mail or call 689-8700.

Smith Barney does not provide tax and/or legal advice. Please consult your tax and/or legal advisors for such advice.

• William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of SmithBarney, a financial services firm serving Northern Nevada at 6005 Plumas Street, Ste. 200 Reno, NV 89509.