Most Americans can benefit from an estate plan

By Dave Hatfield
Suburban Journals
Monday, November 10, 2008 7:09 PM CST

While Americans can realize significant benefits from estate plans, surprisingly, more than half do not have one in place. And, regardless of the size of one's estate, proper planning can prevent family disputes over the disposition of assets.

An estate plan preserves the maximum amount of wealth possible for the owner's intended beneficiaries while providing financial flexibility for the plan's owner throughout his or her lifetime. An appropriate time to create an estate plan is when one's focus shifts from earning a living to ensuring that, after his or her death, loved ones and favorite charities are supported.

Charitable planned giving - especially through wills, trusts and gift annuities - can be a core part of an estate plan. One benefit involves estate taxes, which may become problematic when considering the value of one's home. Under present laws, the personal exemption from estate tax will decline on Jan. 1, 2011 to $1 million.

Charitable estate planning remains one of the best ways to minimize estate tax and provide a much larger inheritance for heirs.

Estate plans have several components:

- a will, the plan's core document

- durable or financial power of attorney

- a provision for health care, or living will.

In many cases, a charitable trust or charitable gift annuity may be beneficial.

Creating an estate plan begins with gathering all important documents and conducting an inventory of one's assets. Most estates are larger than their owners realize when the values of home, savings, insurance policies, investments and business interests are included.

Bequests are one of the most effective elements in estate planning and are also among the most popular forms of planned gifts to the American Cancer Society and other charities. Bequests are especially appropriate if one is financially unable to make an immediate gift but wishes to support a favorite charity in the future. Other advantages include: 100 percent deductibility for federal estate-tax purposes, potential placement of one's estate in a lower tax bracket, maintenance of control over all assets throughout one's lifetime, flexibility and designation of the chosen charity in one's will.

Including a charitable bequest within a will enables one to address his or her wishes and to create a legacy while maintaining control of all assets. Charitable bequests provide many tax advantages and allow people to support several charities simultaneously.

For those with large estates, charitable remainder trusts may be an integral part of the estate plan. Owners of highly appreciated real property, especially income property, face an enormous tax liability when they sell. But a charitable trust minimizes or eliminates those taxes and provides the owner with more retirement income.

Through a charitable remainder trust, an individual or family makes a gift of stocks or real estate to the trust, which sells the assets without having to pay a capital gains tax and reinvests the proceeds in income-producing assets. The donor and spouse will receive income payments for their lifetimes or for a number of years not to exceed 20 years. At the donor's death, or at the end of the term, the balance of the trust passes on to the charity.

Charitable gift annuities offer many benefits to those saving for retirement through company-based defined contribution plans, including the popular 401(k). Regardless of the amount which has been invested in one's retirement plan, turbulence in the financial markets make it difficult to accurately predict how large one's retirement income will be.

Charitable gift annuities, among the most popular estate planning tools the American Cancer Society provides, allow donors to contribute cash or other assets to their favorite charities in exchange for fixed annual payments for life, and the rates are much higher than interest paid on certificates of deposit. A current or deferred charitable gift annuity contractually guarantees a predictable retirement income for life.

Dave Hatfield is director of estate and asset services for the American Cancer Society.

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