A good time to think about giving money

December 07, 2008|By Janet Kidd Stewart | Janet Kidd Stewart,Chicago Tribune

Asset prices and interest rates are down, making this an opportune time for retirees to think about estate planning. Trouble is, few people are interested.

Such planning can involve divesting assets just when you're feeling the most vulnerable.

Wealthy or not so wealthy, many retirees are scaling back this year on what they will do for their heirs. Wealthier families are re-examining tax strategies that involve gifts to family and charities, and retirees with more modest portfolios are reducing their help for adult children so they can preserve more of what is left of their nest eggs, financial advisers said.

"People are definitely cutting back on what they are gifting, even though logic tells you it's a great time to do it," said Joan Crain, wealth-management strategies senior director at BNY Mellon Wealth Management in Fort Lauderdale, Fla.

A wealthy client of Crain's whose estate almost certainly will be subject to federal taxes is trimming the amount of money he is giving his 12 grandchildren this year. The decision comes after several years of maximizing this popular strategy for lowering the amount of money in an estate that is subject to tax. (Gifts under $12,000 for 2008 do not have to be reported and are not counted against the annual $1 million exclusion limit.)

It's also a good time to lend money to relatives because interest rates are low, said Kristine Merta, financial principal with Lowry Hill in Minneapolis, an asset-management firm for wealthy investors. Personal loans must charge interest or it is considered a gift, which raises tax issues.

Talk with your advisers about shortening the term on trusts that involve passing assets to beneficiaries after a period of time, Merta said.

Examine estate documents and consider how a spouse or another most-important beneficiary would fare if you died today, with stocks and other investments at low levels. Are there secondary beneficiaries, such as more distant relatives or charities, that are promised specific assets that might be worth more in percentage terms of the estate than you planned? Merta said this is more common today.

"If you've drafted something that [now] favors some other entity over the spouse, you're going to need to rethink that because the spouse is probably really going to need some of that income," she said. "You need language that the spouse is the primary but has the flexibility to disclaim assets."

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