When it comes to death and taxes, people often avoid taking the time to plan ahead. Unfortunately, estate planning involves both of these unpopular events rolled into one. In the United States, most citizens will not be required to pay an estate tax because of an IRS tax credit known as a lifetime exemption, which makes the first $5.45 million (or $10.9 million for a married couple) of one’s estate tax-free. However, no matter which side of the line you are on, planning is crucial and there are a number of factors to consider when drafting your estate plan to ensure the longevity and protection of your assets for many generations.

Here are just a few important considerations when drafting your estate plan:

Family Dynamics

As uncomfortable as it may be to admit, some family members may be more reckless or wasteful in their inheritance than others. If you have heirs who you fear may be spendthrifts, addicts, or have broken the law repeatedly, it would not be wise to make them the executor of your estate. While we all want our children to be cared for after we are gone, it is crucial to take an honest look at your beneficiaries and decide if they are responsible enough to inherit the money or if additional protections are needed in your estate plan. In the long run, these added protections should enable your children to actually preserve their inheritance, not waste it away.

Taxation of Assets Upon Death

Current U.S. tax policy allows for an asset’s tax cost basis to be adjusted, or “step up”, after an individual’s death with no capital gains or personal federal income taxes due on the sale. This could lead to significant tax savings on an appreciated stock that otherwise would have been taxed heavily during one’s lifetime. For example, if an individual leaves 5,000 shares of a stock that cost him $10 per share, and the stock’s value is $60 per share at the time of his death, the difference between his cost basis and the value of the stock at the time of death is not taxed. If the individual had sold his assets during his lifetime, however, he would have been taxed handily for capital gains. Therefore, the average American today with an estate of less than $5.45 million is better off deferring the transfer of significant assets until death instead of distributing them to heirs during one’s lifetime.

Gift Tax Exemption

For those with estates worth more than $5.45 million, there are ways to reduce or eliminate estate tax liability altogether through the gift tax exclusion. The gift tax exclusion allows you to gift $14,000 each year per person during your lifetime tax free. These gifted sums do not count toward your lifetime exemption, allowing you to reduce the value of your estate and avoid paying high estate taxes upon your death.

Charitable Contributions

Almost everyone has a cause that’s important to them. Factoring charitable contributions into your estate plan can reward you in more ways than one. Not only will you be doing good and getting a sense of personal satisfaction, but can also help you save money in estate taxes. By leaving money to a charitable organization, the full amount of your gift may be deducted from your estate tax-free. There are several options to leave a charitable gift including an outright bequest of cash to the charity, establishing a charitable trust, creating a charitable remainder trust that provides you and your spouse with a life-time income based on the value of your donation, or making a charity the beneficiary of your IRA or retirement plan. In addition, foundations and scholarship funds can also be set up that will live on and continue to help others even after your lifetime.

Failure to plan is a recipe for disaster. Unfortunately, many individuals fail in planning their estates, leaving their heirs to deal with the repercussions of a poorly planned estate. While none of us can predict when we will die, we can be comforted in knowing that our loved ones will be taken care of by planning ahead.

Estate Planning is a very important part of overall Wealth Management and our process as well.  It is important to stay up-to-date on the latest federal and state estate tax policies and limits to ensure that your estate plan is safe and sound.  We do our best to make sure our clients are protecting their wealth and are keeping their estate plans up to date by reviewing those plans as part of each annual review.  If you have any questions or concerns about your estate plan, reach out to your financial advisor for guidance.  

This is an excerpt from the memoir “Dear Mom and Dad” by Georgia Lee McGowen.

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It’s a good thing we had no idea of what awaited us that summer of 1954. Having recently read The Adventures of Huckleberry Finn, the thought of running away from home might have been given more than passing consideration. If it wasn’t for Mom’s unflagging optimism and positive influence, I’m not sure what might have become of Georgie. The looming social challenges would have been tough enough for someone with a sense of being a normal person. But for a ten-year-old boy who doesn’t understand why he feels so totally unlike and separate from his peers, the immediate future would leave him with a sense that his unlikeness made him unacceptable.

After the tears of departure from Oklahoma dried and we were on the road, Georgie had another experience in store before we reached Utah. It was summer camp.

For a number of years, Granny had spent her summers working as chief cook, bottle washer, and sometimes manager of Western Life Camp, a private camp in the mountains northwest of Las Vegas, New Mexico. Georgie and then little brother Nick had been spending at least a part of every summer there with Granny since Georgie was a baby.

From the time we were old enough to have memories of camp, the memories always included horses. Granny grew up on horseback, and she saw to it that her grandchildren had the same opportunity. Long before we moved to Oklahoma, Granny made sure we were taught to ride. The old man who provided horses for the camp always had a few for us to ride when we were there. When I think about it now, it seems almost unreal. As early as four years old, Georgie was expected to ride alone on a horse and be able to handle it … and he did. In fact, he handled it very well. The picture albums have abundant proof. When I look at those pictures now, I think he resembles a chipmunk on a large dog. He was so small and the horse so big that his little legs just seemed to stick straight out to the side.

We were free to roam about the roads and forest as we pleased as long as we didn’t stay gone too long and Granny had a general idea of the direction we disappeared in. We were seldom alone. Reuben, the son of a single Mexican father who lived in a small adobe house near the camp, was almost always with us. He was considerably older by at least five or six years, but the common denominator between us was doing whatever we were doing on horseback.

That summer of 1954 was the first time Georgie got to attend boys’ camp as a regular camper and enjoy all the usual activities of camp, from nature hikes to horseback riding. Every minute was filled with a planned activity except for Sunday afternoon. Sunday afternoons were always free time, but not until we’d written a letter home to the folks … no exceptions, even for Georgie. The following is a sample of one of Georgie’s communications found in that batch of letters years later.

Dear Mom and Dad,
How are you? I am fine. Camp is really fun. I am taking archery and rifle shooting and leather working and horseback riding. My counselors name is Speedy and he is really fast. That’s why we call him speedy. Landis got a bad rash from poison oak and Peder Rush threw up at the dinner table yesterday. Ick.

Love, George

“Dear Mom and Dad!” I have started so many letters in my mind over the years that way, but the intent of those unwritten letters was always to find some way to tell them that I existed … that Georgie wasn’t the only person in that body. It’s a phrase that’s rolled around in my mind so many times that it just comes up out of nowhere for no apparent reason. Life would have been so different if I’d been acknowledged and accepted but nobody, including me, had a clue I even existed. Since camp was supposed to be a time of growth and discovery, I’ve often wondered how things would have gone if a second letter had been included in the envelope.

Dear Mom and Dad,
You don’t know me but I’m your daughter Georgia. You don’t know about me because I am here inside of Georgie and he just now found out about me. I hope you like me when you meet me. Please don’t be mad at me for being here. I can’t help it that I have to share his body and don’t have my own.

Love, Your daughter Georgia

No easy way exists to break that kind of news, is there? It certainly isn’t even possible until the existence of the person is known and acknowledged by the one the body is shared with. I didn’t mean to cause Georgie problems, but I guess I did since my unknown existence made it virtually impossible for him to be a normal little boy.

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About the author

Georgia Lee McGowen spent 30 years in George’s subconscious while they both struggled to understand the meaning of their dual nature, and another 25 years learning to live with their distinct differences. They currently reside in Mesa, Ariz.