- The Washington Times - Sunday, May 19, 2002

Seven goals of inheritance planning:

1. Prevent inheritance conflicts among your children. Give consideration to equalizing among the children. Don't assume that each child and each son-in-law and daughter-in-law will behave perfectly when they learn the inheritance is divided unequally.

2. Protect the inherited money from your children's potential problems. You have taken pains to shield your assets from the human and economic problems that may arise in your life. Provide the same protections once your wealth is in the hands of your children.

When your own child dies, whatever is left of the inheritance will be around for your grandchildren. You can put in provisions that will protect your child's inheritance from his creditors, bankruptcies, divorces, re-marriages, addictions, tax problems, etc.

3. Program your plan to ensure it will be carried out. The effectiveness of any inheritance plan is entirely dependent on the choices made by the person you name as your after-death agent.

Choose wisely. You can have the most expensive inheritance plan or one written on a cocktail napkin. But no matter what kind of plan you have, they are all created equal in that their effectiveness depends on whether the persons whom you have appointed to carry out your plan actually do it.

If your "after-death agent" deviates from your written inheritance instructions, then you have no inheritance plan.

4. Protect your assets for your surviving spouse. If you are like most people, you expect that your money and property will go to your children (or other heirs) after your surviving spouse dies. This expectation often does not meet the test of reality. Be aware of the potential "surviving spouse" problems (no matter how remote they may seem to you now), and incorporate the appropriate countermeasures in your inheritance plan.

5. Reduce or eliminate the death tax. When you die and your children inherit your assets, they also inherit a special tax obligation known as the death tax, which is a tax on the transfer of your wealth after your death. If you are rich enough, the death tax may average 50 percent of all the assets you own when you die.

There are many plans you can establish to reduce the death tax, but most involve one key element giving up control of a portion of your wealth now. By making gifts now, you will own less and the Internal Revenue Service cannot tax you on what you do not own.

6. Prevent the IRS from getting two bites out of the inheritance apple. When your children die, whatever is left of their inheritance will be taxed again. The result is, when your children die, the IRS could end up with 75 percent of your money and property with only 25 percent passing to your grandchildren.

7. Keep your children and property out of the probate court. The chief purpose of probate is merely to transfer your money and property after you die to your children (or other heirs). The probate judge is your "out-of-the-grave" agent who has one job: to authorize the transfer of your real estate and other assets after you die. But probate does not come cheap: It can consume, on average, 4 percent to 6 percent of your estate and can last from nine months to two years.

The solution is a probate-avoidance Living Trust. With a Living Trust, you appoint someone other than the probate judge as your "out-of-the-grave agent," such as your children or other family members, who can do what the probate judge would do transfer wealth from "dead you" to your live children.

Source: "Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others)" by Gerald M. Condon and Jeffrey L. Condon


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