Everyone should have estate plan in place

Many think that since they are not “rich,” they do not need to have an estate plan.

The simple truth is that everyone who owns property (real, personal or intangible) should take the time to set up an estate plan. Good estate planning is just like any other type of financial planning.

It often involves more than having a will prepared. It may be advisable to make gifts now to loved ones and favorite charities to reduce estate taxes later.

Each of us can make annual gifts of up to $14,000 per recipient to reduce the taxability of our estate. That amount is excluded from gift taxes. In the coming years, the annual amount will be indexed for inflation.

Married couples can make a combined gift of up to $28,000 per recipient, even though only one owns the property, and the gift will escape this type of tax.

Just like estate taxes, gift tax rates are relatively high 40 percent on amounts transferred to family or friends of more than $5,340,000 during 2014.

Using the $14,000 annual gift tax exclusion per recipient is very useful for reducing estate taxes when property that is likely to increase in value over time is given away.

Gifts to charitable or educational tax-exempt organizations now can also lower estate taxes later. The asset or item donated will not be taxed in your estate and will provide an income tax deduction to reduce current taxes. If the asset donated has appreciated in value, such as stocks, the tax on the gain will also be avoided.

A clever option for those who would otherwise make a cash gift to a nonprofit organization is to donate low-basis appreciated stock and then use their cash to purchase new shares of the same stock. The benefits are a full tax deduction, the cost basis of the newly acquired stock will be higher than the donated shares’ basis (in essence, an instant step-up in basis for your portfolio), and avoidance of taxes on capital gain.

If desired, your stock gift can be used to provide a new source of income for yourself, your spouse or others that will have tax-free growth over the years. Since none of the donated asset’s value is lost to taxes (which would occur if it were sold), 100% of the asset’s current value goes to work to provide income for those you select.

The benefits from the tax savings are compounded by the satisfaction you receive from choosing how your gift will help the charitable organization, whether that is a medical research project, a special program, a scholarship for local students, or anything else you select.

That’s good planning.


Senior Director of Planned Giving at West Virginia University Foundation Inc.