Let the Spirit of Giving Live On

Deferred Giving

Starting with this issue of the newsletter, the Stewardship Committee will attempt to assist members with deferred giving programs, through articles on long range planning. This is a very popular form of giving because it will happen at a later date. Through the use of trusts, remainder-man clauses, and wills the donor can decide now just how his or her estate will be handled in the future. This decision could involve the naming of all loved ones, and even the church as the beneficiaries of an estate.

Your will, first and foremost, is a legal document. Drafted by your attorney to meet the require­ments of state law, your will probably expresses your wishes in legalistic and impersonal words and phrases.

Nonetheless, your will can reflect your personal life values and your love and concern for family, friends, society, and most importantly God. It can be planned and drafted to meet the needs of your beneficiaries and to assure the efficient and economical settlement of your estate.

The key to a thoughtful will is personal reflection. You need to think carefully about exactly what you wish to accomplish with the assets you have accumulated through a lifetime of effort.

A husband may think: "I want to leave everything to my wife." Upon reflection, however, he may realize that his real objective is to provide practical financial security for her.

You should think in terms of your ultimate objectives, leaving aside the specific methods of accom­plishing these objectives. Indeed it is a good idea to write down everything you wish to accomplish with your estate. There are usually several different ways you can reach each specific objective. The first step to an effective will is to articulate clearly your real wishes.

Outlining a detailed inventory of all your assets is a critical step in preparing your will. Once you know your objectives and the assets that should be available to accomplish the task, you can decide how you want your estate distributed.

Planning Your Will

It is important that you decide how you want your estate distributed. Questions which should be asked are...Should a specific dollar amount or a percentage of the estate be given to the recipients? Is a trust in your will the best way to accomplish your objectives? Should you make lifetime gifts? Should you create a revocable trust? Will all your assets pass under your will? Should you name contingent beneficiaries?

Making a percentage of the value of your estate is often the best way to carry out your objectives because each beneficiary will share in any changes in the value of your estate. By using a trust to accomplish these objectives you can have income or other benefits go to one or more persons or organizations. You can even have the property eventually pass on to a different person or organiza­tion. At the same time, with a trust your beneficiaries can be free of investment worries and respon­sibilities.

In many cases lifetime gifts can carry out your objectives more effectively than bequests. And a lifetime gift can also minimize probate costs and estate taxes. For example, through a trust the donor provides for the well being of the surviving spouse through a lifetime income from the estate. Per­haps the trust is written on behalf of the church. However, the church does not receive any of the income or property during the lifetime of the surviving spouse. 

You may also wish to transfer your assets to a revocable trust that you can create during your life. This may significantly reduce probate costs at your death. In your will you can even bequeath other assets to this trust. Another thing to remember ... a will is always open to public scrutiny, whereas a trust is completely confidential.

Now will all your assets pass under your will? Life insurance and retirement benefits are generally independent of any will. Some jointly owned property will pass on to the surviving owner, if it has been addressed correctly in supporting legal documents. You will need to consider these aspects of your estate when addressing the subject of wills.

One important thing to remember is it usually advisable to name second or third beneficiaries to take the bequest in the event the primary beneficiary predeceases the donor. Planning for such contingen­cies is the hallmark of a thoughtful and practical will.

In planning for the disposition of your estate, you may want to consider the possible impact of a federal or state estate tax. This tax is imposed on the value of everything owned by a decedent at the time of death, and in some cases on properties given away during the individual's life. 

If the total value of all assets does not exceed an estate of $600,000 no tax is applied. Everything above the $600,000 base is subject to the tax. If the value of the estate, including life insurance and retirement death benefits, is significantly less than the above listed figure, you can probably forget about paying a federal estate tax. However, the tax laws in your state of residence should be re­viewed to be assured no tax requirement exists at that level. Your attorney should be consulted to make sure all tax rules have been followed.

Estate tax rates start at 37% of the total value and climb to as high as 55% of the taxable value of all the decedent's property. Clearly, this is a tax that can dramatically reduce the value of your estate. Changes to the federal estate tax law are being considered by Congress, so it is important to check with your attorney of financial advisor periodically to assure you have all current information.

How can you demonstrate your love and concern for family members in a will that is essen­tially a legal document?

One possible way is to ask your attorney to use words which will express your feelings. A bequest to a daughter can be to "A daughter of whom I have always been very, very proud.

You can further demonstrate your feelings by making specific bequests. Bequeathing a se­lected piece of furniture or a set of tools to a son who always admired them can have great meaning. Willing a library collection to an old friend can add greatly to the personal nature your will.

Although these bequests may have little financial value, they can be an important part of the thoughtful and personal actions you take to touch those you care about with a final gesture of love.

Many people demonstrate their love and concern for others by including bequests to charitable organizations they supported during their lives A carefully planned charitable bequest can I a lasting memorial to your personal life, beliefs, interests, and values.

In preparing wills or estate plans, the one item most frequently ignored is how to resolve the distri­bution of IRA funds. Regardless of the type of IRA. ,proper designation of a beneficiary is crucial to the successful transfer of your assets. The type of beneficiary you choose will determine how IRA assets will be distributed from your estate.

If your spouse is the beneficiary, he or she can receive all of your IRA assets in a single payment. Of course, this means all of the required income taxes will be due upon distribution of the funds. As an alternative, your spouse could "roll over" the inherited IRA assets into his or her own IRA and continue to enjoy the benefits of tax deferred compounding. Any withdrawals from the traditional IRA after age 59 1/2 would simply be taxed as ordinary income

If your spouse is younger than 59 1/2 at the time an estate is being distributed, and needs immediate access to the funds, a second alternative would allow you to leave the money in an existing account while maintaining beneficial control. These distributions are still subject to income taxes, but not the typical IRS penalty of 10% for early withdrawals.

If you designate someone other than a spouse as the beneficiary, such as a child or grandchild, that person will have fewer options when they inherit. Depending upon the timing, these beneficiaries may not have the f1exibility to implement delayed distribution to control tax liabilities.

Should you leave all IRA assets to your estate, your will becomes the formal document for distribut­ing the assets. Assuming your will is up- to- date, your IRA assets will be directed to the intended individuals. However, be aware that in naming your estate as the beneficiary means only your executor can manage the assets of the IRA until the funds are completely distributed.

Some people choose to place their personal assets in a trust while they are living, because the trust manages these assets for them. The problem with this is, a trust cannot be the registered owner of an IRA. If you want IRA assets distributed to a trust upon your death, the trust must he listed as the beneficiary.

Should you desire to leave your IRAs to a non-profit benevolence, such as Treasure Hills Presbyte­rian Church, your estate can enjoy tax savings in the form of an estate tax charitable donation. If you are charitably inclined, you may find this alternative an attractive option.

Regardless of which option you elect, make sure the IRA is not forgotten when you enter into estate planning

When deciding how to prepare an estate, many attorneys recommend "percentage of value" bequests rather than monetary bequests. This will cause all bel1f;ficiaries to share in increases or decreases in the value of the estate at the time a will is executed.

Another consideration should be the "contingent bequest". Here you need to answer such questions as what happens if a beneficiary named in the will dies before the will is executed. In that case, the estate could go to an unintended relative. Another thing which could happen, should there be a prior demise of the beneficiary, is the estate could lapse, or pass on to your residual estate. Regardless of what happens, your plans are frustrated. The best way to solve these possible developments is to name a contingent beneficiary to take the bequest in the event your primary beneficiary predeceases you.

The "in kind bequest" is very appropriate in special circumstances. You may desire to name some item of real or personal property to a specific individual or organization, such as the Treasure Hills Presbyterian Church. By naming the planned recipient of this property as the beneficiary you can assure it is treated according to your plans. Keep in mind, however, that if the property is not listed as part of your estate at the time of your death, the bequest may become void and the beneficiary will not receive that part of your estate

It is important to remember the specific, or named bequests of your estate will be paid and satisfied first. Then., whatever is left of your estate after all bequests, taxes, and estate costs have been paid will be distributed to "residuary beneficiaries". This means that after all named recipients of the estate have been satisfied according to your wishes, a statement should be included to cover any remainder. This statement could read something like, all the rest, residue, and remainder of my estate, I give, and bequeath in equal portions to my children, grandchildren. Etc.

There are many ways to address your plans and wishes for the disposing of your property. The important thing is to make sure your bequests are strongly identified and that the items named are included in the list of holdings which make up your estate.