Ask a Planner: Save taxes, confusion with estate plan

Q. Why is it important to have an estate plan?

A. There are basically only three places your money can go: heirs, charity or the government. And unless Congress changes current estate laws, beginning in 2011 the federal estate tax rate will be 55 percent on taxable estates over $1 million.

Yet with proper planning techniques, charitable giving may decrease your estate tax liability and at the same time increase the overall amount that heirs receive.

Even if your estate is below the $1 million federal exemption level, there is good reason to have a valid will. In fact, if you have not created your own estate plan, then you have the state’s default plan. For Washington residents who die without a will, the state has a default formula for determining how assets are distributed to spouses, kids and extended family. The problem is that your idea of where the assets should go might differ from the state’s plan. Here are some key decisions to make:

How much to transfer: Deciding how much to transfer requires that you decide on a lifestyle finish line – how much to spend in retirement versus saving an inheritance for heirs. In the area of giving, it requires that you consider how much you wish to transfer to charities or community organizations that make a positive impact. What legacy do you wish to leave? If there are too many unknowns to set a dollar amount, you might think in terms of a target percentage.

How to treat each heir: Consider how assets would be divided. It has been said that if you love your children equally, you will treat them each uniquely. If there is concern about an heir’s level of maturity in handling an inheritance responsibly, there are creative ways to transfer wealth through the use of trusts. While the objective should not be to control from the grave, there may be an opportunity to prepare the next steward for responsible management, while also ensuring that all their needs are met.

Giving now or later: Do you want to begin transferring the inheritance to heirs during your lifetime (through gifting), or as a testamentary gift outlined in the will? What about lifetime gifting to charities or ministries that are important to you? As author Randy Alcorn once said, “You can’t take it with you, but you can send it on ahead.”

The family talk: It is also a good idea to have a family meeting to share your plans. This is especially important if you decide to include charitable giving in your plan. Is there an opportunity to pass wisdom to the children regarding your personal convictions about giving and stewardship? Ultimately, the context and content of the discussion is up to you, but it may be helpful to ensure that the family is on-board with your decisions.

A competent estate attorney can help guide you through all these decisions and create the will for you. It is also important that your financial adviser be aware of your plans to help tailor your financial strategy appropriately.

Loran Graham is a certified financial planner and member of the local Financial Planning Association chapter. Readers are invited to submit questions on financial planning to be answered in this space each Tuesday. Send questions to

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