Estate Planning for Women

Women are a powerful financial force in today’s economy as they independently earn, manage, and distribute more wealth than ever before.  That’s why at Hoffman & Associates we  feel it’s important for women to take control of their long term financial security and develop a proper estate plan.  A successful estate plan is one that helps protect and preserve your wealth, gives you control over financial matters, ensures children and elders are taken care of, and honors your strong charitable passions.

Today, women face many challenges whether married, divorced, single or widowed, including a possible lack of financial know-how, lower lifetime wages and compensation, and greater responsibility for caretaking of children and elders.  Why are women unique when it comes to estate planning?  First, because women generally outlive men by five to seven years, and the average age of a widow is merely 56 years young.  Some of these single women are faced with managing thousands and even millions in assets without ever balancing a checkbook.  For single working women, compensation is also a major obstacle as women tend to earn less over their lifetime as compared to men and many take time off during child-bearing years, which may affect social security and pension benefits.   Another challenge unique to women is their tendancy to be the main caregivers in the family, making it critical to develop a comprehensive plan for the care of minor and special needs children, as well as elderly parents.  Finally, women generally harbor more charitable inclinations than men making it a priority for them to consider philanthropy and giving as part of their estate plan.

Here is a  checklist women can use in developing a successful estate plan:

  • Become educated in the importance of tax planning, know the current tax laws, become familiar with exclusions and how to take advantage of them, investigate advanced estate planning tools and techniques, including trusts, gifting, and college savings plans.
  •  Create an itemized list of all property and debts, including, but not limited to, insurance policies, securities, bank accounts, real estate, jewelry and artwork, business interests, pension plans, IRAs, and other retirement benefits.
  •  Consult with appropriate advisors (estate planning attorney, CPA, financial advisor) and execute a Will to direct the disposition of your estate, designate who should be in charge, simplify probate, and name guardians for minor children.
  •  Consider a Trust for the protection of children and assets and to reduce the tax liability (income, gift and estate).
  •  Get general powers of attorney and advanced directives for healthcare in place.
  •  Create a viable plan to manage and preserve your estate, keeping in mind the changing exemption limits for passing assets.  Currently the permanent estate and gift tax exemption is $5,250,000.
  •  Consider having adequate life insurance in place to pay taxes if necessary and to help preserve your family’s lifestyle by paying for children’s education, mortgage expenses, taxes or other needs after your death.
  •  Record where a safe deposit box is located and maintain all important documents in an organized manner.  Maintain a written list of all current advisors and keep it with your  list of property and debts.
  •  Provide instructions regarding your funeral wishes and any prepaid funeral plans to whomever may be involved in making such arrangements.
  •  Consider charitable transfers to accomplish your estate planning goals. A charitable remainder trust, charitable lead trust, charitable gift annuity or outright gifts to any number of charities.
  •  If you are a business owner, plan for your business’ succession, so you are deciding who will manage your entity during illness, disability, or after death.

 

Although some women feel uncomfortable taking on financial responsibility for their  future and that of their heirs, we strongly urge every woman, whether married, single, divorced or widowed to take a careful look at their financial situation and plan accordingly. Married women should ensure their estate plan coincides with that of their husbands to adequately take advantage of tax considerations.  And since married women are more likely to outlive their husbands, they must be prepared to ultimately be responsible for the protection and distribution of all assets.  For many working women, their main concerns include retirement planning and long term financial security, guardianship for minor children, caretaking for elderly parents, lowering tax liability, and ensuring assets remain in the family bloodline. We encourage all women to consult with professional advisors to ensure adequate financial and estate plans are in place while also incorporating lifetime goals and wishes.  Hoffman & Associates has created specialized estate planning services  for women designed to address these specific needs.  For more information on our targeted services, please visit www.hoffmanestatelaw.com.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.  The information contained herein is provided “as is” for general guidance on matters of interest only.  Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services.  Before making any decision or taking any action, you should consult a competent professional advisor.

Charitable Lead Annuity Trust (CLAT)

Current economic conditions have presented intriguing options for charitably oriented individuals looking to transfer wealth tax free. A Charitable Lead Annuity Trust (CLAT) is an alternative trust structure that transfers wealth free of gift tax to an heir and a charity. In a CLAT the donor creates a charitable trust that pays an annuity to the charity and at the end of the trust the principal often transfers to the heirs. The CLAT benefits from the historically low IRS discount rate (now hovering at around 1.4%) which makes it possible to avoid gift taxes when transferring assets remaining in the trust at its termination. For a CLAT to function properly it is important that the assets in the trust have an expected appreciation value greater than the hurdle of the IRS discount rate. Fortunately, the extremely low hurdle in place now vastly widens the pool of feasible favorable asset options.

The tax law on CLATs opens a window of opportunity that is particularly appealing in today’s economy. Tax law dictates that all payment amounts be known at the creation of the CLAT; however, the payment amounts do not need to be the same. A “Shark-Fin” CLAT takes advantage of this nuance of law by making minimal payments throughout the trust’s life and in the last year makes a balloon payment large enough to cover the amount necessary for the trust to earn a 100% gift tax deduction according to the IRS discount rate. By allowing the trust to grow rapidly through the small payments in the trust’s life, the large balloon payment is made possible as long as the trust achieves the discount rate. Anything made in excess of the low discount rate is passed to the heirs free of gift tax. The Shark-Fin strategy hedges against the possibility of poor investment results in the initial years of the trust and anticipates more favorable investment results in the long term. A Shark-Fin CLAT is particularly appealing when the economy is sluggish because it compounds the benefits of both the current low IRS discount rates and the long term prospect of economic recovery.

The negatives of a Shark-Fin CLAT are mostly shouldered by the charity. A charity is most likely going to want the steady flow of sizable payments rather than one large payment at the end of the trust, especially since the charity will be receiving the same amount whether a Shark-Fin CLAT or a normal CLAT is used. Also, time-value of money makes the wealth received from a Shark-Fin CLAT less valuable to the charity than an equal amount received through a normal CLAT. Another negative is the income tax under a Shark-Fin CLAT is likely to be greater. The trust is taxed on earned income in excess of the distributions and since the distributions to the charity are small in every year except the last, the deduction amount offsetting the tax is very small.

For more information on CLATs, please contact Hoffman & Associates at 404-255-7400