Financial Planning (ATS Alumni)


 

Tools Available for Personal Estate Planning

The Will
Joint Ownership of Property
A Revocable Living Trust
Durable Power of Attorney
Totten Trusts- Payable on Death Accounts
Life Insurance Contracts
Liquidity
Protection for Dependants
Retained Life Estate

Tools Available for Charitable Estate Planning

The Charitable Gift Annuity
Charitable Remainder Trusts
Charitable Lead Trusts
Charitable Estate Agreement

Tools Available For Personal Estate Planning

There are many tools available to you for the planning of your estate. Here is a brief outline of some of the avenues that you can use to accomplish your goals and objectives.

The Will

Basic to every estate plan is a will. It is a written legal document drafted and signed during your lifetime, while you are competent, which can accomplish many things.
· It provides an opportunity for you to give a final testimony of your Christian faith.
· It revokes all previous wills that you have made.
· It authorizes payment of all debts and expenses related to your final illness.
· It authorizes the payment of taxes by the estate.
· It disposes of your personal property according to your desires, either through direct instructions in the will, or by referencing a letter of instructions placed with the will.
· It makes in-kind or fixed-dollar distributions to family or charitable organizations.
· It distributes your estate remainder to the individual and charitable beneficiaries.
· It names a personal representative who is responsible for entering the will into probate and making distribution according to your desires expressed in your will.
· It can nominate the person you wish to serve as guardian of minor children and any other persons for whom you have custodial responsibility.
· It empowers the personal representative to carry out the terms of your will, especially relating to the ability to sell, dispose of, and liquidate property and to continue the operation of business interests.
· It establishes trusts for the benefit of minor children or other individuals for whom you have income responsibilities.
· It names the trustee of any trusts established and empowers that person to carry out the terms of the trusts for their duration.
· It can be used to waive bond.

Each state has strict laws regulating the execution and validity of the will. It is extremely important that you retain competent legal counsel, familiar with the laws of your state of residence, to draft your will.

Joint Ownership of Property

For smaller estates, joint ownership of property may be the ideal estate-planning tool. It avoids probate and provides an orderly transfer of property between two individuals. However, care must be taken not to place too much property in joint ownership, eliminating the use of tax saving opportunities available with other estate planning tools.

Except for small estates, the use of a trust is usually more desirable.

A Revocable Living Trust

A trust can be used for many other purposes, including income tax planning. It can protect minor children from premature distribution of property. A trust can be confidential, can be used to provide management for property in case of disability, avoid probate and estate taxes, and can provide coordination of your entire estate planning process. It is easy to establish and easy to change. Further, a trust can avoid ancillary administration of the estate when you own property in more than one state. It can be used to distribute assets in the trust - in either fixed dollar amounts, or as a percentage of the whole, or as a residual amount after other distributions are completed - to either individual or charitable beneficiaries at the death of the trustors or over a determined period of years. When a trust is used as a key instrument of your estate plan, it is typically combined with a simple will that transfers all remaining property to the trust at the time of death. In other words, a trust can do just about anything that you design it to do.

Durable Power of Attorney

The realities of life dictate that we must give consideration to who will be in a position to manage property in case of mental or physical disability prior to death. Relying on family members or friends to act under court-appointed conservatorship is usually unwise, as it may affect interpersonal relationships and may result in unnecessary costs and restrictions.

The alternative is to grant the power to manage your property in case of disability to an individual or a bank trust department. In most states, this can be arranged through a power of attorney designed to be in effect during incompetency.

Totten Trusts- Payable on Death Accounts

These are vehicles peculiar to the financial industry. You retain full control over the property during your lifetime, and designate a beneficiary of the account at the time of your death. The beneficiary has no control over or access to the property during your life.

These vehicles do not provide management of property in case of mental or physical disability. They are only probate avoidance devices.

Life Insurance Contracts

The life insurance contract has many uses in the estate planning process.

Liquidity

Even when the best estate planning tools are used, there are liquidity needs to pay final expenses, death taxes, or to provide an inheritance for one family member so a business interest or other real property can be distributed to a family member involved in a business or farm. Life insurance may be the only way to guarantee that this money will beavailable, in the right amount, at the time needed.

Protection for Dependents

Life insurance is effectively used for the protection of dependents when there has not been sufficient time to accumulate assets. A life insurance policy designed to provide cash when needed most, may be the only way a young family can guarantee sufficient assets for the
surviving spouse and children. Life insurance may also be used as a charitable gift when a charity is named as the beneficiary of the policy agreement.

Retained Life Estate

You can transfer real estate to another individual, retaining the right to use the property for a period of years or for life.

You have established two separate interests, a life estate interest and a remainder interest. The life estate gives you full use of the property during your life. This includes the right to live in the property, or rent and receive the proceeds of the rental.

The life estate agreement can either be revocable (changeable) or irrevocable (not changeable). If the agreement is irrevocable, the property cannot be sold without consent of the holder of the remainder interest and a division of the proceeds, based upon the value of the remainder interest at the time of sale.

Tools Available for Charitable Estate Planning

Your charitable gift will be made because you want to partner with the ministries of Alliance Theological Seminary and The Christian and Missionary Alliance, and because you believe it is God's plan of stewardship for your estate to share part of that which is entrusted to you. When you have determined to make a charitable gift, the tax advantages of a charitable transfer and the integration of these transfers into your total estate plan can be of great advantage to the overall plan. Each of these available tools are irrevocable agreements.

The Charitable Gift Annuity

You can transfer a sum of money, during your lifetime or through your estate plan at death, through The Orchard Foundation to any ministry of The Christian and Missionary Alliance, requiring that they pay you, your spouse, or another beneficiary an income for life. A portion of the income will be tax-free, some may be treated as capital gains (when appreciated property is transferred), and the remainder will be taxed as ordinary income. In addition, a portion of the capital gain tax on appreciated property can be avoided when lifetime transfers are made. If you make a lifetime transfer, you receive an income tax deduction at the time of the transfer, though you maintain income from the annuity for life. The charitable gift annuity can be designed to avoid probate. It also achieves federal gift and estate tax savings.

Charitable Remainder Trusts

Charitable remainder trusts can be established during your lifetime or through your estate plan at death. They can be used to achieve income, estate, and gift tax advantages. A charitable remainder trust may direct a payout that is either a percentage of principal or a fixed amount. When you make a lifetime transfer, you receive an income tax charitable deduction. You also avoid capital gain tax on appreciated property and the property is distributed outside the probate process.

Charitable Lead Trusts

Charitable lead trusts can be established during your lifetime or through your estate plan at death. The payout is distributed during the term of this trust to a charitable cause. At the end of the term, the principal is distributed to named beneficiaries, whether the trustor themselves, or family members, or other persons so named. When you make such a transfer, only the annual payout from a lead trust is deductible.

Charitable Life Estate Agreement

Previously in this section, we discussed the life estate agreement. When the transferred property is a personal residence or farm and the remainder man is The Orchard Foundation for the benefit of The Christian and Missionary Alliance, definite income, estate and gift tax advantages are achieved and the transferred property is not subject to probate.

Information provided by:

Stephen Clark
The Orchard Foundation
888-215-2953
clarks@theorchard.org