Legacy Planning: Estate and Charitable Planning

Wealth Preservation and Transition through Effective Income and Estate Tax Planning

Open Range Financial Group is committed to the overall financial well-being and long-term client success. The creation of financial well-being can involve a number of separate strategies.

Commonly, strategies are implemented in three phases:

  1. Wealth Accumulation;
  2. Wealth Preservation; and
  3. Wealth Transition/Transfer.

Although Wealth Accumulation and Preservation is the primary focus of our work, Open Range recognizes the importance of an integrated plan designed to take into account Wealth Transition/Transfer to family members, charities, or other unique areas of interest for our clients.

Though Open Range is not legally licensed in this area, it is committed to working with estate, trust and income tax-planning professionals to help develop individualized financial transfer strategies for clients. To further this commitment, Open Range has close working relationships with several prominent groups of estate and tax-planning lawyers.

Open Range highly suggests and stands ready to assist with the development and incorporation of several of the following strategies:

Last Will and Testament

This document directs the disposition of assets owned individually by you at the time of your death. Failure to have a Last Will and Testament in place will likely result in those individually-owned assets passing to unintended beneficiaries under state law. This document also appoints a guardian and conservator for your minor children after your death.

Simple Will

The most common form of will is the simple will, also known as an “I Love You Will”. Here, all assets owned by the first spouse pass free of income and estate taxes to the surviving spouse using the unlimited marital deduction (UMD). However, on the death of the second spouse, a much smaller family estate may pass on to heirs due to estate taxes. Depending on the size of an estate, the federal estate tax can amount to as much as 50%.

Living Will

A living will allows you to state your wishes about certain types of medical care and life-prolonging procedures. The document only takes effect if you cannot communicate your own health care decisions. The benefit of a living will is that you do not put your family in the position of having to make difficult decisions and you also ensure your health care wishes are carried out.

Durable Power of Attorney for Health Care

A Durable power of attorney for health care is a document that lets you appoint another person to make medical decisions on your behalf if you become unable to make those decisions yourself. This document may resolve any potential conflicts over your medical treatment, and helps ensure your wishes are respected. Unlike a living will, this document covers a broad range of health care decisions.

Durable Power of Attorney for Finances

A durable power of attorney is a document that allows you to appoint another person or persons to manage your affairs and make financial decisions on your behalf if you become incapacitated. It is important to include a durability provision to have these powers continue if you become incapacitated or mentally incompetent; otherwise, its powers will cease. A general power of attorney may give your chosen attorney extensive powers over your affairs, or you may consider a special power of attorney limited to specifically defined tasks.

Revocable Living Trust

This instrument allows a person to transfer assets to a trust to avoid the unnecessary expenses tied to probate courts upon death. This type of trust can be changed at any time and income earned from the investment of assets in the trust is generally reported on the individual income tax return of the person who established the trust. Variations of this type of trust can also be utilized to reduce both probate and estate taxes at death while, at the same time, providing for assets to be held for the benefit of the surviving spouse.

Re-Titling of Assets

After creating and implementing an overall estate plan, it is necessary to re-title the assets covered by the estate plan; this is a premiere service offered through Open Range. Your Open Range professional will oversee and facilitate the process of updating titles in compliance with the client’s financial and estate plan. It is important to note that regardless of what estate plans are in place, the failure to properly title assets results in adverse estate and income tax consequences. Most importantly, through our management, we assure the proper execution of our client’s intents and wishes.

Lifetime Gifts

The transfer of assets to children or other beneficiaries during the donor’s lifetime is an excellent technique to reduce estate taxes at death. However, this technique should be used thoughtfully in order to take into consideration the possible income tax consequences of making gifts.

Irrevocable Trusts

These documents are excellent vehicles for passing assets in an estate tax and income tax efficient manner. These documents include life insurance trusts, charitable trusts, special need trusts, grantor retained annuity trusts, qualified personal residence trusts, among others.

Business Transition

Simple and complex planning techniques are utilized to pass businesses to intended recipients including children. Mechanisms include shareholder/operating agreements, family limited partnerships, and lifetime gifts.

Taxes and Other Estate Expenses

If your estate is significant, the taxes paid on transfers both during your lifetime and at death may be significant. In addition to the various taxes due, additional fees and expenses should be considered:

Federal estate (death) tax Gift Tax Generation Skipping Transfer Taxes (GSTT) Income Tax State Death Tax Attorney’s Fees Personal Representative (executor) fees Probate fees Final expenses (burial, for example)
These items are likely the largest expenses your estate will have to pay. Proper planning can minimize the amount of taxes and expense that need to be paid, and allow you to transfer more of your assets according to your wishes.

Minimizing Estate Shrinkage

All of the taxes and expenses noted above must be paid before your estate can be distributed to your beneficiaries, meaning that the value of your estate can shrink considerably before it reaches your beneficiaries. Proper estate planning can reduce the amount of this shrinkage through the use of a number of techniques, including a property drafted will, trusts, and various gifting strategies.

Qualified Plans

The value of any qualified retirement plans (including 401(k)s, 403(b)s, and IRAs) at the death of the plan owner are included in the owner’s gross estate. In addition, the beneficiaries of the plans are also subject to income tax on any distributions. The income in the hands of the beneficiaries is referred to as Income in Respect of Decedent (IRD). All distributions from qualified plans in a particular year are aggregated to determine the amount subject to tax.

However, if the federal estate tax was in effect at the time of death, for income tax purposes the beneficiary is entitled to deduct a proportionate amount of any federal estate taxes attributable to the inclusion of the qualified plan assets in the plan owners’ gross estate. Calculating and comparing the federal estate tax payable with and without the qualified plan assets in the gross estate determines this deduction.

Even the most successful lifetime financial results can be decimated by poor (or no) income tax and estate planning. We strongly urge and work with our clients to develop and regularly update their estate plans.