Estate of Confusion — Benefits of an Effective Estate Plan


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People are often surprised when they find out what I do for a living. When I tell them that I guide individuals and families in the distribution of their wealth so that they may live the life they have always imagined, they often say: “I thought you were a financial advisor?” I share with them that I am a financial advisor, however what most people don’t realize is that advising is not simply about returns, crunching numbers and discussing portfolio allocations. It’s much more about people and relationships. We are all made of dreams, hopes and goals as well as concerns and fears — not numbers and data.

When I ask people what’s important about money to them — I find that most associate money with security or freedom — although the definition of these words can often have different meanings for different people. As I help them peel off the layers of the onion to get to their true desires, nearly everyone seems to have the same objective: obtaining true financial peace of mind during their retirement years. Many also wish to leave a legacy behind to loved ones when they pass on. Their intention is to help ensure that their surviving family members and sometimes the charities they care about — also gain financial security and freedom. The challenge for most people is they don’t know where to begin with their estate planning or find it too overwhelming to begin, which leaves them in a state of confusion.

My intention is to inform you of some of the key estate planning changes that have recently occurred, and share a few techniques to help ensure that Uncle Sam does not become your number one beneficiary, as well as motivate you to put your estate plan in order. The most important reason to plan is to make sure that what you want to happen after you’re gone actually does. Who gets control of your business? Who gets the family home? Will a special-needs child or grandchild have the necessary funds available? 

Planning out your legacy requires the same kind of strategic approach as you would take in planning out your retirement. There are numerous ways people share their wealth with others; giving to children, grandchildren and charities are just a few examples. Similarly, there are a myriad of estate planning strategies to help affluent investors reduce or eliminate potential state taxes. 

We’re all aware that the current federal debt and deficits have ballooned to record levels over the past three administrations. I believe no matter which political party is in power, taxes will eventually be increased in order to maintain current government services and programs. High-income taxpayers will continue to shoulder the burden in a number of ways. Do not assume that your existing financial and estate planning documents will meet all of your goals. Often they won’t. Those who adopt a wait-and-see approach may find that they have defaulted to a wait-and-pay approach, which gets us right back to the subject of taxation.

After years of changes, political arm-twisting and the indecisiveness of our polarized Congress, the federal estate tax rules have recently changed once again. These new rules are now set permanently into the tax code — at least until the tax code changes again! Thanks to The Tax Cuts and Jobs Act enacted in December of 2017, the amount an individual can exclude from estate taxes (including gifts given during his or her lifetime) has more than doubled. In 2020 it had increased to a generous $11.58 million per person. After all, with smart estate planning, a couple could exclude over $23 million from estate or gift taxes. Transfers more than the exemption amount are subject to tax at a 40 percent rate and these amounts are scheduled to increase with inflation each year until 2025. This new legislation effectively eliminates the federal estate tax for all but the wealthiest individuals. One caveat is worth noting: these rules are set to expire at the end of 2025. At that time, the exemption amounts will revert to the 2017 levels of just $5 million, adjusted for inflation.

Even if you doubt that you will ever have a taxable estate, it still pays to plan ahead. If you think you don’t have to worry about estate taxes because of the new generous federal estate tax law, please note that for many the estate tax unfortunately does not end with the federal government. Separate state levies are still a big concern for families in 15 states as well as Washington DC. As an example, fiscally challenged Oregon — where we happily reside — is one of a handful of states that imposes its own estate tax. Oregon is an amazing place to live but a horrible state to die in and here’s why. Under current law, if you are an Oregon resident or own assets located in Oregon, and the combined value of your total estate (wherever it’s located) is in excess of $1 million, your estate must file an Oregon estate tax return and pay Oregon estate tax. The tax rate varies between 10 and 16 percent depending on the size of the estate. The tax applies to all the assets that are in excess of the $1 million deduction. That’s often not a tough threshold to meet or exceed once you calculate in the value of your home.

In the face of severe budget deficits, some states have implemented estate and inheritance taxes that kick in at lower levels than do the federal ones, which could result in a bite out of funds you had hoped to pass on. I’m pretty sure that Uncle Sam probably isn’t your beneficiary of choice, so I would urge you to review your estate plan and make sure it reflects your wishes.

In short, you need to pay attention to the rules in your state and think about estate taxes regardless of your level of assets. Keep in mind that you don’t have to wait to die before bequeathing money to your beneficiaries. In addition to your lifetime gift tax exemption, in 2020 you may gift $15,000 each year to one or more individuals. A married couple may gift $30,000 to each person. This annual gifting amount is called the gift tax annual exclusion. These gifts don’t count toward the lifetime $11.58 million exclusion and can add up quickly. A couple with two adult married children, for example, could give $30,000 to each this year, plus $30,000 to each spouse, for a total of $60,000. With education costs high and rising, these funds could jumpstart a 529 college savings plan for your grandchildren or help with the down payment of their first home. 

I have always taught my kids that the more they give, the more satisfaction they’ll create in their lives. One example of how we can take this simple concept of giving to the next level is by implementing a Charitable Remainder Trust (or CRT as we love acronyms in our business). When properly structured, it is a win for donors, their heirs and their charity or charities of choice. In addition to the joy of giving, there are several other incentives for charitable contributions that successful people are often not aware of. 

Here are the basics: 

A donor establishes a CRT by transferring debt-free assets into an irrevocable trust. Once the trustee sells the assets, the proceeds of the sale are invested in an income-producing portfolio. In the case of a married couple, this income can last until the death of the surviving spouse, whereupon the principal of the trust passes to the designated charity or charities. So appreciated stock, shares of your business, real estate or other appreciated assets can be converted into an income stream that provides retirement income while eventually assisting a worthwhile charitable cause.

In establishing a CRT, the donor receives the following:

  1. An income tax deduction for the present value of the trust’s remainder interest directed to the charity.
  2. Lifetime annual income for the donor and spouse.
  3. The satisfaction of helping a worthy cause, as the principal of the trust is distributed to a designated charity.
  4. The potential avoidance of capital gains taxes.
  5. A more diversified investment portfolio.
  6. The reduction or elimination of potential estate taxes, as the donor’s estate is reduced by the assets transferred into the trust.

If you currently own highly appreciated assets such as your business, stocks or Central Oregon real estate and would like to sell the asset but are concerned about paying a large capital gains tax, a CRT allows you to enjoy the benefits of the appreciated assets without having to pay any capital gains taxes. 

A CRT may offer substantial financial flexibility, even to middle-income bracket taxpayers who have held onto non-income producing assets simply because they don’t know about helpful alternatives. Developing strategies to reduce estate taxes while increasing charitable contributions may be important priorities, however most of the people I work with (understandably) don’t wish to disinherit their loved ones. This situation can be addressed by using a portion of the income generated by the CRT to purchase a wealth replacement life insurance policy. The amount of insurance replaces the value of the assets gifted to the CRT, which will eventually pass to your named charities. When properly structured, the proceeds of this policy can be arranged to pass free from both income and estate taxation to the family’s children or heirs at the death of the surviving spouse.

Business owners, families and individuals can benefit from the use of CRTs in achieving charitable as well as financial objectives. CRTs, however, are governed by a complex network of regulations. To ensure that all of these moving parts are set up properly, a CRT must be structured by an experienced estate planning team that includes an estate planning attorney, CPA and a wealth manager who is also a life insurance expert. The benefits of a CRT are significant. In review, they can reduce your income taxes now, your estate taxes when you die and allow you to help a charity that’s meaningful to you. In other words, you can still reap a benefit from the assets and enjoy the delight of your benevolence, while endowing your selected charity with a sizable gift. 

David Rosell is president of Rosell Wealth Management in Bend. He is the creator of Recession-Proof Your Retirement Podcast and author of Failure is Not an Option — Creating Certainty in the Uncertainty of Retirement and Keep Climbing — A Millennial’s Guide to Financial Planning. Find David’s books on Audible and iBooks as well as and Barnes & Noble. Locally, they can be found at Newport Market, Sintra Restaurant, Bluebird Coffee Shop, Dudley’s Bookshop, Roundabout Books and Sunriver Resort, 

Investment advisory services offered through Valmark Advisers, Inc. an SEC Registered Investment Advisor Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste. 300 Akron, Ohio 44333-2431. 800-765-5201. Rosell Wealth Management is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.

The information provided does not constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Consult your financial professional before pursuing any idea contemplated herein.


About Author

David Rosell of Rosell Wealth Mangement

David Rosell is president of Rosell Wealth Management in Bend. He is the author of Failure is Not an Option- Creating Certainty in the Uncertainty of Retirement. You may learn more about his book at or Ask for David's book at Costco, Barnes & Noble and in Bend at Newport Market, Cafe Sintra, Bluebird Coffee Shop and Powell's Books in Portland.

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