Wednesday, August 14, 2013

Finishing our Last Will and Testament

After two years of interruptions including the death of my mother-in-law and the heart attack suffered by our attorney, our wills and estate planning documents are complete. They contain all the usual material one would expect to find in such a package including power of attorney and advance health directives. These are two pretty scary documents. Sometime in my life, if I am sufficiently incapacitated, someone will need to have the power to manage my money as well as the legal authority to pull the plug on my life.

We were assisted in this somewhat convoluted process by a gentleman who provides estate planning services for our district of the Christian and Missionary Alliance. There is no charge for his very valuable services. Of course it is his hope that you will provide for the Church in your will. In our particular case one of the tools at our disposal is termed a Charitable Remainder Unitrust. This is normally just called a Charitable Remainder Trust or CRT. If you have $250,000 or more in a 401-K or similar tax deferred accounts or own assets that have appreciated enormously but have not yet been hit with capital gain taxes check out the CRT. It isn’t just a good thing for evil rich people.

Consider my Government TSP account. It has never been taxed. Although I no longer contribute to this account, it continues to grow tax free. Not counting my house, my tax deferred holdings are my last line of defense. I don’t intend to use any of this money until it is absolutely necessary. What happens if I manage my money wisely over the remaining years that God gives me? There might be a significant lump of untaxed money left in that account. If it all comes out at one time my heirs would be hit with a terrible tax bill. It is better in my mind to continue to protect that money from the taxman rather than see it squandered by the state of Maryland.

When I die any remaining funds in my TSP account will pass untaxed into a CRT. These funds will be distributed at a rate of 5% of the remaining principal per year to my wife for as long as she should live. After my wife passes, the CRT will provide our heir with this same income for an additional 20 years. At the end of the 20 year period, any remaining funds—if the Christian and Missionary Alliance is half way competent that should be a significant number—will then be distributed according to the instructions found in our Ministry Fund (another legal document that is part of our estate package).

For now, the management of my TSP account remains in my hands. If we need to spend the money in my TSP account it is there for us while I am still alive. Whatever is still there after my death will bless my wife for as long as she lives and will provide a guaranteed supplementary income to my goddaughter (who knows maybe as she approaches retirement). When it is all over four of our favored charities will be blessed without benefiting the taxman. By the way we can change the charities and the percentages any time we want until my death.

If you have been blessed with substantial untaxed assets, consider them as candidate investments for a CRT. Work with your Church and your attorney to put together something that makes sense for you at this time in your life. Then revisit your will from time to time (maybe every 5 years or so unless something dramatically changes). It doesn’t turn into stone until you are dead.

If you are young and single, you really don’t need a will for your motorcycle and the three pieces of stereo equipment you own. Still, if you are an adult go ahead, fill out one of those $30.00 Internet wills. They are certainly better than nothing. If you are married, keep everything you own as joint tenancy. Then if one of you dies, your financial life goes on undisturbed. Again, one of those Internet wills is probably enough. You absolutely must have a will if you have children. You want to decide who gets custody of your minor children, not the court system of your particular state.

Let us hope that the day will come when you have substantial assets that require careful management to balance the claims of your heirs, your desire to bless others, and the ever present danger of the taxman. When that day comes, protecting your estate will require a little more work than filling out forms on the Internet.

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