Need Gifting Ideas for Net Worth of $1,600,000


A

Arnie Goetchius

An 87 year old widow has the following assets, income and expenses:

Assets

Investments 1,100,000

Tax Free Bonds 73%
Large Cap Stocks 19%
Money Market 8%

Real Estate 500,000

Total Assets 1,600,000

Liabilities 0

Net Worth 1,600,000

Annual Income 73,000
including Social Security, Pensions, Interest & Dividends

Annual Expense 32,000

Given that the Net Worth is now over $1,500,000 and will continue to
grow each year, what kind of gifting should be set up to minimize estate
taxes?

The widow has two children and 6 grand children. At first blush, gifting
$11,000 each year to the children and their spouses and the grand
children will remove $110,000 per year from the Net Worth. This approach
will bring the Net Worth down to near $1,000,000 by 2010 and will
minimize estate taxes assuming there is no change in current tax law
i.e. tax cuts expire in 2010 and also assuming the widow lives to 2010.
if she dies before 2010, then the $1,500,000 still applies and the Net
Worth should be below that.

I will recommend to the widow's children that they hire a financial
planner but thought I'd ask here first as to any ideas you folks might have.
 
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B

BMS

How is her health, could there be long term care issues in the offing?

What kind of estate documents are in place?

Not knowing the state, probate could be expensive and time consuming and
have a bearing on the estate planning.

Using a 529 plan for the grandchildren could use 5 years worth of gifting
out of the estate at once.

Be sure to get an independent financial planner. The AARP site has a good
guide for selecting a planner. www.aarp.org
 
H

HW \Skip\ Weldon

I will recommend to the widow's children that they hire a financial
planner but thought I'd ask here first as to any ideas you folks might have.
I agree with BMS that there are quite a few areas to cover before
getting specific. The beginning point is that the children have no
need of a financial/estate planner - the widow does. Unless of
course, there are competency issues. So my first question is why are
the children involved?

The answer to that question is just the beginning. Which is why - I
suspect - that BMS suggested someone local.

Keep in mind that she is barely over the federal threshhold. (Don't
know about state implications.) And in 1/06 the unified credit
equivalent jumps to $2 million. So before going off the deep end with
fees, fees, fees, another issue would be one of value received.

In fact, if I were the widow, I could make short work of that $100,000
taxable amount by taking a few close friends to Tahiti for the winter.
No problem. <grin>

-HW "Skip" Weldon
Columbia, SC
 
M

me6

Im curious..... how did such a woman amass such a fortune?

Id love to know
 
A

Arnie Goetchius

HW said:
I agree with BMS that there are quite a few areas to cover before
getting specific. The beginning point is that the children have no
need of a financial/estate planner - the widow does. Unless of
course, there are competency issues. So my first question is why are
the children involved?
There are competency issues involved. That is the main problem. If the
children don't take over (one has a POA), nothing will happen.
The answer to that question is just the beginning. Which is why - I
suspect - that BMS suggested someone local.

Keep in mind that she is barely over the federal threshhold. (Don't
know about state implications.) And in 1/06 the unified credit
equivalent jumps to $2 million. So before going off the deep end with
fees, fees, fees, another issue would be one of value received.
Does it not go back to $1 million in 1/10?
In fact, if I were the widow, I could make short work of that $100,000
taxable amount by taking a few close friends to Tahiti for the winter.
No problem. <grin>
She could also end up in an assisted living facility in the next six
months which would also eat up some bucks.
 
A

Arnie Goetchius

BMS said:
How is her health, could there be long term care issues in the offing?
Yes, probable need for assisted living.
What kind of estate documents are in place?
She had an estate attorney draw up the documents but I have no knowledge
of what is in them.
Not knowing the state, probate could be expensive and time consuming and
have a bearing on the estate planning.

Using a 529 plan for the grandchildren could use 5 years worth of gifting
out of the estate at once.
Doesn't the tax advantage of the 529 expire in 2010 (11?)
Be sure to get an independent financial planner. The AARP site has a good
guide for selecting a planner. www.aarp.org
Thanks for the tip.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you respond.
 
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B

BMS

From here in the Bay State they have decoupled the estate tax and the top
exclusion will only be 850k this year and several states have done it also.
 
M

MJ10

You might like to talk to a tax lawyer and check out
a Self Administered Roth Ira

This seems to have some exceptinal benefits

Regards
Jan
 
V

Valueinv

Sorry to break the news but...1.6 million is not considered a fortune these
days. But chances are her money has been put to work in investment
vehicles over time and perhaps her husband left some assets behind.
 
K

kansasman

BMS said:
How is her health, could there be long term care issues in the offing?

What kind of estate documents are in place?

Not knowing the state, probate could be expensive and time consuming and
have a bearing on the estate planning.

Using a 529 plan for the grandchildren could use 5 years worth of gifting
out of the estate at once.

Be sure to get an independent financial planner. The AARP site has a good
guide for selecting a planner. www.aarp.org
I have checked out the AARP site for gift ideas too. For those who
"have everything", I like to donate to the person's favorite charity
in their name...it is a very considerate gift which is always
appreciated!
 
A

Arnie Goetchius

She has no earned income and therefore is not eligible for any kind of IRA.
 
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T

Tad Borek

Arnie said:
An 87 year old widow has the following assets, income and expenses:

Investments 1,100,000
Real Estate 500,000
Liabilities 0
Annual Income 73,000
Annual Expense 32,000

Given that the Net Worth is now over $1,500,000 and will continue to
grow each year, what kind of gifting should be set up to minimize estate
taxes?

The widow has two children and 6 grand children.
(and from other reply)
She had an estate attorney draw up the documents but I have no
knowledge of what is in them.

Arnie,
I don't think a financial planner is your first visit here, this isn't a
financial planning question. You should see an estate planning attorney
to review what's been done so far. Some key details are missing like,
say, does her will currently provide for donating enough to charity that
there isn't any estate tax concern as it is? Where are the assets now,
in trust or in her name or both? What is her current (pre-incompetency)
plan for passing on the assets and would the gifting under POA go
against that? Could those gifting under POA be hit with a suit in a few
years? What's the cost basis of the home? What type of care is likely to
be required?

Also there are some "who's the client?" issues here. One read could be
"raid the inheritance before mom dies" and there may be more than ten
potential heirs here?

Financial planners don't address these questions, those are legal
questions. You might end up putting money in 529 plans or insurance
policies or who knows what, at which point you'd have financial planning
questions, but the first stop is the estate planning attorney. It's
impossible to begin to answer gift questions without knowing the estate
plan and the options for changing it.

-Tad
 
S

Sgt. Sausage

Im curious..... how did such a woman amass such a fortune?

Id love to know
1.6 Million? Fortune?

If she started investing, say $300.00 a month between, say the
ages 22 and 67, at, say an 8% rate of return -- that would put her
darned close to 1.6 million.

It's not that difficult-- it just takes time.

BTW -- 1.6 million is nowhere near a fortune.
 
T

Tad Borek

Valueinv said:
Sorry to break the news but...1.6 million is not considered a fortune these
days. But chances are her money has been put to work in investment
vehicles over time and perhaps her husband left some assets behind.
What?

$1.6M for a household means your net worth is higher than ~96% of the US
population, and over 99% of the world population.

It's not a Buffett Gates Rockefeller kind of fortune but it's a lot of
money.

-Tad
 
S

Sgt. Sausage

Tad Borek said:
What?

$1.6M for a household means your net worth is higher than ~96% of the US
population, and over 99% of the world population.

It's not a Buffett Gates Rockefeller kind of fortune but it's a lot of
money.

-Tad
Just because 96% of the US population can't save the money
they earn, still doesn't make $1.6 million a "fortune".

In my book, 1.6 million is a TidySum(tm) and a good nest egg
for a retiree, but I wouldn't consider it a "fortune" until she's
hit the 10 million mark. 1.6 million is barely enough to retire on
when you consider the risks of Social Security and Medicare
changes that are sure to come in the next few years, the risk of
long-term health care, the increased healthcare costs for the
elderly -- a "fortune" would guarantee a comfortable retirement
in the face of such adversity. $1.6 million does not.
 
A

Arnie Goetchius

Tad said:
(and from other reply)



Arnie,
I don't think a financial planner is your first visit here, this isn't a
financial planning question. You should see an estate planning attorney
to review what's been done so far. Some key details are missing like,
say, does her will currently provide for donating enough to charity that
there isn't any estate tax concern as it is? Where are the assets now,
in trust or in her name or both? What is her current (pre-incompetency)
plan for passing on the assets and would the gifting under POA go
against that? Could those gifting under POA be hit with a suit in a few
years? What's the cost basis of the home? What type of care is likely to
be required?

Also there are some "who's the client?" issues here. One read could be
"raid the inheritance before mom dies" and there may be more than ten
potential heirs here?

Financial planners don't address these questions, those are legal
questions. You might end up putting money in 529 plans or insurance
policies or who knows what, at which point you'd have financial planning
questions, but the first stop is the estate planning attorney. It's
impossible to begin to answer gift questions without knowing the estate
plan and the options for changing it.

-Tad
Tad,

Thanks for the very thoughtful response. I'm fairly sure there is an
estate planning attorney already involved so I'll suggest the family
discuss the situation with him to see what he suggests.

I don't think the family or the attorney had any idea of the size of the
estate. I just brought it to the family's attention after doing a
complete inventory of brokerage statements, 1099's, safe deposit box
contents, etc.

Arnie
 
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V

Valueinv

Tad,
Some people have a different mindset. Some people don't settle for a
mediocre income. Prime example I'm age 20 with a net worth of close to
$250,000 all stocks, bonds CD's and I know I am nowhere close to living
comfortable, that is why I work as much as I can and still go to college
full-time. My dad is a multi-millionaire at age 56 and still goes to work
5 days a week. It is basically a matter of what kind of environment you
grow up in and what you are taught at an early age, and where I grew up in
(McLean, VA) 1.6 million would basically mean you need to triple your
money before even glancing at the word retirement. And for the most part
it is similar in the area I go to college (Boca Raton, Fl).

Dan
 
M

Michael Sullivan

Tad Borek said:
What?

$1.6M for a household means your net worth is higher than ~96% of the US
population, and over 99% of the world population.

It's not a Buffett Gates Rockefeller kind of fortune but it's a lot of
money.
It's also a fairly typical amount for an upper middle class
person/couple to have accumulated over a lifetime of making a good
living, always saving 10-15% of income, and doing reasonably well on
long term investments.

The point being that it's not some mind bending amount of wealth for an
87 year old woman to have accumulated, even if it's quite a bit more
than most 87 year old women have.


Michael
 
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A

Arnie Goetchius

Michael said:
It's also a fairly typical amount for an upper middle class
person/couple to have accumulated over a lifetime of making a good
living, always saving 10-15% of income, and doing reasonably well on
long term investments.

The point being that it's not some mind bending amount of wealth for an
87 year old woman to have accumulated, even if it's quite a bit more
than most 87 year old women have.


Michael
Exactly right. For example, in our neighborhood (the widow is my
neighbor and she has been here from the beginning), the development was
built in the early sixties with houses ranging from $30,000 to $40,000
on one acre lots. Those same houses are now selling for $500,000 to
$650,000.
 

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