How to Preserve Your Legacy For Your Loved Ones

You have several smart choices to direct the maximum inheritance to loved ones after you are gone. But if your estate is sizable, minimizing the federal estate tax stands head and shoulders above all others.

Consider a Charitable Bequest
By making bequests of particular assets to your favorite charitable organizations, which is exempt from federal estate taxes, you can actually preserve more of your estate for the benefit of loved ones. For example, IRAs and other retirement plan assets are taxed twice at death, first as part of your taxable estate and second as income to the beneficiary. Rather than leaving IRA or retirement plan assets to family members, consider the following alternative.

Example: Betty plans to leave $250,000 to her niece, Karen, and $250,000 to your favorite charitable organizations. Among her assets, she owns a $250,000 IRA. If Betty leaves the IRA to Karen, the IRA will be subject to estate taxes (up to a maximum rate of 46 percent in 2006) and income taxes at Karen’s marginal rate (25 percent). Instead, Betty plans to leave the IRA to us and less tax-burdened assets to Karen. Thanks to the unlimited estate tax charitable deduction, no estate tax will be levied on the IRA. And because our organization is tax-exempt, we won't owe income tax either.

The information on this site is not intended as legal, tax or investment advice. For such advice, please consult an attorney, tax professional or investment professional.

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