I've heard and read about setting up trusts that can eliminatedeath taxes; protect assets from creditors; shelter money for collegeexpenses; protect assets from divorce; have Medicaid pay for a nursinghome without being broke first; and so on. Now I'm hearing that evencorporations are escaping taxes by moving overseas. It seems to me thatwith the right lawyer, anything's possible.
Do financial planners help clients get rich by using theseangles? I know I sound a little confrontational, but seriously, can theaverage person benefit by having one or all of the trusts I've heardabout?
ANSWER: Yes, no and maybe, because eachexample you gave needs to be taken in context. I need to let you knowup front that I'm answering your questions in general terms and notspecifically for you -- only an attorney can make specific trustrecommendations for you. Also you need to understand up front that youcan't evade taxes without going to jail, but by following the rules youcan avoid wasting a lot of money or at least postpone the payment oftaxes.
First, federal death taxes are now only taxed on assets over$1.5 million or $1 million if you just want to give it to the kidsearly. The estate-gift tax exemption increases every year till 2009 atwhich time it is $3.5 million. Then in 2010 the exemption drops back to$1 million unless Congress reinstates a higher exemption.
Simple things like not owning your own life insurance ortrusting your home can save a great deal of money if your assets areover the exemption level. There are also other common-sense things youcan do to manage estate taxes like making sure that both you and yourspouse each can utilize the estate-tax exemption, or begin lifetimegifting ($11,000 this year) per spouse per year per child. After all the obvious bases are covered, a trust can help. Ifyou want income from the money you wish to exclude from death taxes,it's possible to give your heirs their money early in a trust that paysyou annually for a fixed number of years and allows it to grow outsideof your estate. There are too many types of trusts to discuss here,except to say that most people can find the type of trust that worksfor best for them. Most people want to give to charities but assume the only wayto contribute is cash now. But there are ways to give that can alsobenefit you as regards taxes, current income and your estate.Charitable organizations offer tax-efficient trusts that pay youinterest or fixed payments for life before they receive any money, oryou can set it up so that the charity receives the income while you'realive and the kids get the balance after you die. Charities can becreative and they will find a way to meet any reasonable requests.
Trusts to protect assets from creditors and divorce arepossible in some cases, but they are expensive to set up and maintain.It can involve moving your money out of state as regards creditors andpossibly out of the country for divorce, but neither will allow you toskip paying U.S. taxes, unless you also want to leave the country andgive up citizenship. Medicaid is a safety net for low-income earners with little orno income. You are not eligible until your assets are below a certainlevel. Thus, your statement isn't accurate. You may have heard that thechildren of people needing nursing home care hide their parents' assetsor that attorneys draw up trust documents just before a person enters anursing home. Both are illegal; there is a look- back period of, Ibelieve, five years, during which assets transferred to trusts orchildren must be returned before eligibility is established. Severalstates have agreements with Medicaid that allow assets to be retainedif a person has a long- term-care insurance policy that coversfull-time care for three years before the patient is picked up byMedicaid. Regarding corporations enjoying favorable tax treatmentbecause they move overseas: If they are no longer U.S. companies, Idon't know if you could tax them. But if they are just setting up amailbox overseas for the tax benefits while enjoying all the benefitsof a U.S. company, I agree there is something wrong.
I hope this information helps you move from onlooker to doerby contacting your tax, legal and financial advisers. And finally,thanks for the compliment about financial planners making people rich-- I wish it were all true. Financial planners help people make goodfinancial decisions based on their needs and resources. We help you tomake good choices for investing, preserving and protecting assets, andgenerally achieving peace of mind amid the ever- increasingcomplexities of modern financial life. Sam DeLuca, CFP, is a registered investment advisorand certified financial planner.Source: The Santa Fe New Mexican b YellowBrix,Inc. Copyright 1997-2003
