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Estate Planning
Wealth Planning for High-Net-Worth Individuals
Focusing on the fundamentals of wealth planning and the many complex issues raised by significant wealth, Smith Barney has developed widespread capabilities to address issues of asset preservation, liquidity, risk management, charitable and philanthropic pursuits, retirement and education funding, as well as wealth transfer and estate planning.
Our team of dedicated professionals — including trust and estate attorneys, planning analysts and specialists in tax and business valuation, investment analytics and wealth planning — will work side-by-side with your personal advisors to develop an integrated financial plan tailored to your unique circumstances. Your Smith Barney Financial Advisor will introduce you to this professional team and serve as your liaison throughout this comprehensive planning process.
Most high-net-worth investors spend dozens or more hours every year working with tax advisors to reduce their annual income tax. Yet, the largest tax of all — the federal estate tax — does not get nearly as much attention, even though proper planning may save a large percentage of your estate. Today, it may be more important than ever to protect your assets from significant loss due to estate taxes. To learn more about wealth planning at Citi, talk to your Financial Advisor and request a copy of our new brochure — Managing the Portfolio of Your Life: Innovative Thinking About Wealth Planning.
Why Develop an Estate Plan?
We are, in America, in the beginning stages of a great wealth transfer. Over the next 40-year period, $40 trillion will change hands in this country from one generation to the next.¹ Consequently, estate planning has assumed a more critical importance for families than ever before.
If you do not have a plan, you should certainly begin preliminary discussions about this very important matter. If you already have an estate plan, it should be reviewed regularly to make sure it accomplishes your current goals.
There are some very good reasons to develop an estate plan. Among them are the following:
- Reduce the amount of taxes that will have to be paid
- Increase the likelihood that your assets are distributed the way you want
- Provide the liquidity needed for estate settlement expenses at a minimum cost
Strategies for Preserving Your Wealth
You've worked hard your whole life to accomplish your goals and provide for your family. Unfortunately, much of your hard work can come undone if you fail to plan for life's inevitability. Many people prefer not to focus on their own mortality while others simply do not believe they're wealthy enough to have to worry about estate and gift taxes. In either case, not planning can be a huge mistake.
When you account for your home, investments, jewelry and personal property, retirement accounts and IRAs, a family business, and insurance in your name, you may have assets worth more than $2 million, which is the value of assets an individual can pass free of federal estate tax. Every dollar over $2 million can be subject to the Federal Estate Tax at 45%. And while your assets may be worth less than $2 million today, if you consider your age and even a modest growth rate, you may end up with a significant estate for tax purposes.
Fortunately, there are some simple estate planning strategies that can help make sure that what you have spent a lifetime building and saving will be there to provide for generations to come.
Do you have an up-to-date will and trust?
A will is a testament to your life's work. Dying "intestate," or without benefit of a will, leaves the laws of your state to determine the division and distribution of your property. Yet, less than one-half of all American adults has a will.2 Having a simple will that does not take into consideration optimum tax planning may also have undesirable results.
2 CCN.com, June 6, 2006
Have you maximized your Federal Estate Tax Exclusions?
In 2008, each individual is entitled at death to transfer assets worth $2 million free of estate tax using the Federal Estate Tax Exclusion. This exclusion will increase to $3.5 million in 2009. There are strategies for married individuals to take full advantage of each spouse's Federal Estate Tax Exclusion.
Are your assets properly titled?
In order to take advantage of the Federal Estate Tax Exclusion, consider owning assets in your individual names rather than in joint ownership. Proper planning to ensure that each spouse can use the Federal Estate Tax Exclusion may necessitate transferring assets from one spouse's name to the other.
Have you taken necessary steps to avoid probate?
Certain assets, such as qualified plans, IRAs and life insurance policies allow you to select a specific beneficiary. When you designate a beneficiary, your assets will pass to the named beneficiary at your death, without probate. It is important to review these documents to make sure you have selected a beneficiary and as your life changes, you should update the designations as necessary.
Despite the avoidance of probate, these assets may still be subject to estate taxes. In fact, if you have significant assets in your qualified retirement plans and IRAs, and would like to pass these assets on to a spouse or children, your heirs may also be inheriting a significant tax bill. Unless you plan properly, federal estate and income taxes could consume up to 70% of a qualified plan/IRA account when it is passed to beneficiaries.
Are you taking advantage of annual gift tax strategies?
Gifting is one of the most basic and inexpensive strategies for saving on estate taxes and helping your loved ones. If you can afford to make gifts you should consider starting a gifting program. Anything you don't gift to families or charity during your lifetime may be subject to estate tax.
Do you have sufficient liquidity to satisfy estate taxes?
Generally, the IRS demands that any estate tax liability be satisfied within nine months of the date of death, and that payment must be in cash. There are four typical sources from which funds can be obtained: cash reserves, loans, liquidation of assets or life insurance proceeds. If properly owned by a trust or third party, life insurance proceeds may be especially advantageous. In any case, be sure your beneficiaries aren't forced into the position of selling investments at the wrong time because of a shortage of liquid funds.
Will your life insurance be free from estate taxes?
Usually life insurance proceeds avoid probate and are exempt from income tax. However, they can be subject to estate tax if you own the policy or have rights in the policy. To avoid increasing your estate tax liability, you can have your adult children purchase and own the policy or have a trustee of an irrevocable trust purchase the policy.
Have you met with a Smith Barney Financial Advisor?
Time waits for no person, so don't be complacent. Discuss your estate planning objectives, concerns and fears with your Financial Advisor so that together you can develop a plan, applicable to your unique financial situation and needs, for effectively transferring wealth to your beneficiaries.
1 The annual exclusion gift amount may be increased annually based on indexing for inflation.
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