Volume 13, Issue 6  

many individuals put off planning their estates. For some, this is due to the misconceptions that estate planning is only necessary for the wealthy or that it only involves tax planning, which can be done “later.” For others, it’s because they simply have a difficult time contemplating death—a perfectly natural reaction. Yet, it is important to recognize that regardless of these issues, solidifying the future of your family is probably high on your list of priorities. That’s why a well-structured estate plan is invaluable. Through it, you can control the distribution of your assets and possessions during your lifetime and after your death, as well as name guardians for your children or plan care for other dependents.

Getting Started

Your first step in developing an estate plan should be to assemble a competent, professional estate planning team. For some, this initial step is a difficult one because it requires sharing personal thoughts, fears, wishes, and financial affairs with others. Therefore, it is often comforting to incorporate at least one trusted advisor, regardless of his or her area of expertise, in the estate planning process. Certainly, your attorney will play an instrumental role in preparing any necessary legal documents. However, your financial professional, bank trust officer, insurance professional, or accountant may also need to become involved. Generally, the size and complexity of your estate, as well as the existence of an established relationship with an advisor, will dictate the overall involvement and/or need for additional professional expertise or emotional support.

Initially, your estate planning team will focus on your current financial position. This is a very important part of the estate planning process, because you need to know where you stand today in order to accurately plan for the future. For this reason, you will need to gather any and all materials involving current or future income, property ownership, insurance, and legal arrangements already in place. This may require you to divulge a lot of private information, but it is a necessary part of the estate planning process. Here is some of the information you’ll need to provide:

  • Current income from employment and all investments.
  • Investment documents, certificates, statements, passbooks, etc.
  • All retirement benefits: Social Security (including survivors’ benefits), Individual Retirement Accounts (IRAs), pensions, and profit-sharing plans.
  • Any expected deferred compensation.
  • Deeds to primary and vacation residences.
  • Life insurance policies of which you are the owner, the insured, or the beneficiary.
  • A list of all personal property.
  • Current and expected debts and obligations, including mortgage and loan balances, real estate liens, taxes payable, consumer debts, and estimates of funeral costs and estate settlement expenses.
  • Your will, if you have one.
  • Trust agreements, if any.

A complete analysis can begin once you’ve assembled this information. This will allow you to take a closer look at your family’s needs. You may seek the answers to some of the following important questions:

  • How will your family’s overall cost-of-living requirements change in the years ahead?
  • Who will take care of any minor children if something happens to you?
  • Who will make medical and financial decisions on your behalf if you become incapacitated due to illness or injury?
  • What are the estimated educational expenses when your children reach college age?
  • Is there a family member who needs special care or medical attention?
  • How will estate taxes affect your assets as they are currently held?

Keep an Open Mind

The careful planning of an estate requires you to share a lot of personal and financial information with one or more professional advisors. This fact alone often serves as an initial stumbling block to the planning process. However, bear in mind that with an accurate financial and personal portrait, it will be easier to tailor your estate plan to accomplish your specific goals and objectives. In addition, while most of your initial time will be spent creating your first estate plan, your circumstances—both personal and financial—are bound to change over time. Therefore, your estate plan will need to evolve so it will continue to address your needs and wishes.

By keeping an open mind and placing your trust in a competent advisory team, you can help ensure that your wishes for asset control and distribution will fall nothing short of your expectations.


suppose you had purchased term insurance when you were just starting out in life to help protect your growing family. At the time, term insurance may have offered the flexibility to help meet your family’s immediate needs at an affordable price. Indeed, the initial low cost and relatively high death benefits of term insurance are often its most attractive features. However, as your children grow and you become more financially successful, your concerns may shift toward strategies that can help maximize savings for retirement, fund a child’s college education, or do both. Concerns about the financial security of your surviving spouse and the resources that may be needed to pay any estate taxes owed at your death will also factor into your long-term plans.

Although term insurance premiums are relatively low when a person is young, premiums can substantially increase with age. In some cases, the premiums may remain level, but either the death benefit decreases yearly or a significant premium increase is eventually experienced. Thus, over time, you may become interested in converting your term policy to a permanent one.

Advantages of Converting

Like term insurance, permanent life insurance also provides a guaranteed death benefit. Some other appealing benefits of permanent life include the following:

  • Provided that premiums are paid on time, benefits will never decrease. Also, premiums will never increase and can not be canceled due to any health changes that you may experience over the years.
  • With time, permanent policies accumulate cash values. As the values grow, the insured will have the opportunity to withdraw money from the policy. These loans are tax free and can be used in a variety of ways, such as supplementing retirement income, helping younger generations with college expenses, contributing to the purchase of a second home, or assisting with any other purpose. Loans do not have to be repaid, but if they are not, they will decrease the value of the policy’s death benefit.
  • Some permanent policies offer non-guaranteed dividend payouts. Such payouts occur when the insuring companies’ earnings exceed original projections. Dividends have a wide range of uses. They can be reinvested into the policy to accumulate cash values, taken as cash payouts, or used to fund policy premiums.
  • Guaranteed purchase options are another feature that some permanent policies will offer (an additional charge may be involved). These options allow the insured to purchase additional amounts of coverage without a medical exam.
  • Should the insured decide to cancel the policy, he or she will be guaranteed to receive the full amount of the cash values that accumulated during the life of the policy.

The conversion privilege available in most term policies offers those who cannot initially afford cash value insurance a great opportunity to convert at a later date. Some term policies may offer a conversion credit that makes converting to cash value even more economical. Another particular advantage of converting from term to cash value, rather than purchasing a new cash value policy, is that there is no need for medical or financial requalification.

More Than Immediate Security

Converting your term insurance to a cash value contract may allow you to continue to provide coverage for your family at a more affordable cost. You will be comfortable knowing your family will be provided for in the event of your untimely death. In addition, you will also feel a great sense of confidence knowing your premiums are building tax-deferred cash values that may be important in the years to come.

While this approach may not be for everyone, it is always wise to review all your insurance options. Therefore, you may wish to consult your tax professional for advice regarding your particular situation.

Note: Guarantees of a life insurance policy are based upon the claims-paying ability of the insurer. Loans and withdrawals may reduce a policy’s death benefit and cash surrender value, and they may cause a policy to lapse. Lapse or surrender of a policy with a loan may cause the recognition of taxable income. Policies classified as modified endowment contracts may be subject to tax when a loan or withdrawal is made. A federal tax penalty of 10% may also apply if the loan or withdrawal is taken prior to age 59½. Cash value available for loans and withdrawals may be more or less than originally invested.


It may be better to give than to receive, but it is even better to give and see your generosity rewarded. Charitable donations can play a valuable role in your financial and tax strategies. A well-planned gift to charity could produce the following benefits:

  • The chance to be more involved in charities close to your heart
  • An income tax deduction or reduction
  • A reduction (or avoidance) of estate tax

In addition, your donation could provide you with the ability to maintain financial security, the ability to exercise control over assets both during your lifetime and after death, and the opportunity to take care of your heirs in the manner you choose.
In order to accomplish all of these things, you will need a plan tailored to your individual circumstances. The following strategies can be mixed, matched, and combined to provide a giving plan that is right for you.

Gifts of Appreciated Property

When properly arranged, gifts of appreciated property to charity may allow you to avoid the capital gains tax you would have owed upon the sale of the asset and to receive an income tax deduction usually worth the fair market value (FMV) of the property. Also, by removing that asset from your estate, you may reduce your potential estate tax burden.

Charitable Remainder Trust

If you wish to make a gift to a charity but also retain some control over the property, a Charitable Remainder Trust (CRT) may be the vehicle for you. A CRT is most effective when funded by an appreciating asset, such as stock in a family-owned business or real estate. After transferring the property to the trust, no income tax is imposed on income remaining in the trust, and you may take a current income tax deduction based on the future value when transferred to charity. Also, by removing the remainder value of the asset from your estate, you may reduce your potential estate tax liability. In short, you obtain the tax benefits of giving while postponing when the charity will receive the gift.

Charitable Lead Trust

If you wish to give to a charity without giving the asset away permanently, consider a Charitable Lead Trust (CLT). Through a CLT, you essentially give the charity the use of an asset and the right to any income generated for a period of years. After the specified period has lapsed, the asset can revert back to you or be given to whomever you choose. Possible assets could be income-producing stocks and bonds, your rare book collection, or a painting that you transfer to a museum for a certain length of time. You may receive a current income tax deduction for the value given to charity; however, the trust pays income tax on its income. If a CLT is created upon your death, potential estate tax may be reduced.

Give Away Your 401(k)

Instead of leaving your retirement plan assets to your heirs, think about leaving the balance in your 401(k), or other retirement plan, to a charity. A charity receiving plan assets is not taxed on the income, and your estate gets an estate tax deduction for the value of the assets passing to charity. Consider instead leaving your heirs something that won’t be taxed, such as appreciated capital gain property for which they get a basis step-up at your death.

Early tax planning can help you make the most of your charitable giving opportunities. In doing so, you may be able to take advantage of added benefits. Consult your qualified tax, legal, and financial professionals for specific guidance.


The cost of a college degree at a private, four-year institution may feel like paying a hefty home mortgage or another large debt. In fact, tuition at both public and private colleges and universities has risen rapidly over the past few years. Thus, many parents and students find themselves wondering whether the return on investment is really worth the monetary commitment.

Here are some significant considerations that support the pursuit of a college education:

  • Today, many careers require an undergraduate degree.
  • Starting salaries are usually greater for college graduates.
  • Employees with college degrees generally face fewer periods of unemployment and have much higher chances of continued employment throughout their working careers.
  • Our technology revolution demands specialization and, often, continuing or postgraduate education.

So, is a college degree worth the investment? Considering the potential advantages of a college education, it certainly is worth the effort to secure an opportunity for a lifelong career that is both satisfying and rewarding.

The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2007.