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Estate Planning

Have you thought much about your legacy, the lasting imprint that is now a work in progress?  It speaks to how you wish to be remembered by family, friends, and the recognition of your contributions to your community and other worthy causes.
Your legacy also includes the financial impact you plan to leave on those that you care about.  Like most things in life, this requires careful planning, especially as to how your assets will be transferred efficiently to your heirs and the desired timing of the transfers.

In addition, a good estate plan protects you from the risks associated with losing your mental and/or physical ability, ensuring legal provisions are in place so that trusted agents can make important medical and legal decisions on your behalf.

Many fall into the trap of viewing estate planning as a death tax savings matter or that it just concerns the ultra wealthy.  The reality is that most people need a well-developed estate transfer plan that considers all of the unique facts and circumstances of their family situation.

Estate planning is a complex area of wealth management.  Decisions regarding the appropriate use of a trust, gifting issues, equitable inheritance planning, the proper titling of assets and the implications of government assistance programs on your estate are just a few examples of common estate transfer issues that should be addressed through thoughtful estate planning.


An alarming percentage of Americans either do not have a will or possess a poorly constructed one.  For parents with minor children without a valid will naming a legal guardian, the decision as to whom would raise your children in the event of their demise would be made by a judge! 

Furthermore, should you die without a valid will, your estate would be subject to intestacy laws and your heirs would lose control over the inheritance outcome.  For families in second marriages, intestacy and/or old wills could lead to the unintended disinheritance of loved ones. 

A will is a flexible document that accomplishes a number of planning objectives after your death.  Including a trust in your will can help protect your spouse and children over long periods of time and lower estate taxes as well.

Ownership of some assets do not pass through probate (will) but by operation of law. Ownership of jointly held assets, for example, can automatically transfer to the surviving co-owner.  Similarly, life insurance, IRA and retirement plan accounts must adhere to designated beneficiary forms to transfer legal ownership; beneficiary designation document trumps the instructions in your will. 

Selecting a qualified executor is important because this person or entity is held responsible for settling your estate, transferring ownership of assets, paying taxes, discharging debts, and generally following your will instructions.  A surviving spouse is typically not qualified or emotionally prepared to serve as the executor of the spouse's estate.  Appointing a professional executor in your will is the best way to avoid costly probate mistakes.


A trust is a centuries-old legal arrangement whereby money or property is owned and managed by one person (or organization) for the benefit of another. 

A trust is created by a settlor, who entrusts some or all of his property to people of his choice (the trustees).  The trustee is the legal owner of the trust property ("corpus"), but is obliged to hold the property for the benefit of one or more individuals or organizations ("beneficiary") specified by the settlor.  The trustee owes a fiduciary duty to the trust beneficiary, who is the "beneficial" owner of the trust corpus.  The fiduciary standard is the highest legal, ethical and professional standard of conduct. 

The trust is governed by the terms of the trust document, which is usually written, and is governed by local and state law.  A trust can be created during a person's life (usually by a trust instrument) or after death ('testamentary trust") in a will. 

Some of the benefits of using a trust include privacy protection, control retention, probate avoidance, death tax reduction, asset protection and safeguarding assets for children.  Note that a revocable living trust is a popular form of trust and it can be beneficial in some situations, but for most folks it is unnecessary. 

Estate Transfer

Transferring your estate to the next generation can be a daunting goal.  Procrastination can prevail and a golden planning opportunity lost.  Aside from the obvious tax consequences associated with wealth transfer, the transfer of ownership of a family business requires forethought and planning to address non-financial transfer issues as well.  Chances are that sooner is the best time for you to develop your estate transfer plan, not later. 

For a family business owner, a key estate transfer question is whether "equal" means fair to the children who are either not involved or only partially involved in the business. Family wealth can be difficult to divide, so estate transfer planning techniques may range from life insurance to advanced estate planning to engender a fair and equitable division of wealth among the family. 

The traditional estate transfer objective has been estate tax avoidance or creating estate liquidity after death.  There are a number of estate freeze strategies that allow the transfer of equity in an appreciating business or real estate to the next generation during your lifetime while control is retained by the owner generation.  These transfers reduce your estate at the time of the gift and in the future as future appreciation of the assets confers to the family members.

Power of Attorney

A power of attorney is a legal authority granting the legal right to an individual ("agent") to act on someone else's behalf in a legal or business matter.  The agent is a fiduciary for the principal and is held to the highest standard of conduct.

An attorney legal power is routinely granted to allow the agent to take care of a variety of transactions for the principal, such as executing a stock power, handling a tax audit, or maintaining a safe-deposit box.  It can be written as either a general, limited or special power and is generally terminated when the principal dies or becomes incompetent.  The principal can revoke the power of attorney at any time.  Certain powers cannot be delegated, including the powers to make, amend, or revoke a will, change insurance beneficiaries or contract for marriage. 

A special type of power of attorney is the "durable" form, which continues the agency relationship beyond the incapacity of the principal.  Absent a durable power of attorney, a family member must obtain a legal guardianship to handle your affairs, a legal process that can be complex and costly.

Advanced Medical Directive

A well-developed advanced medical directive, also known as a "health care power of attorney", is important component of your overall estate plan.  Also referred to as an advance medical directive, this legal document stipulates your desired medical treatment preferences and appoints a trusted individual ("agent") to serve as your surrogate decision-maker in the event you cannot make medical decisions on your own behalf. 

Advance directives generally fall into two main categories: living will and health care power of attorney.  The living will is a written document that specifies your desired medical treatment should you become incapacitated, especially if the condition is terminal.  It often stipulates that the medical professionals should not perform life-sustaining procedures if your condition is bleak. 

A health care power of attorney is often more appropriate than a living will because its authority is much broader in scope.  This document designates another person as fiduciary agent to make health care decisions on your behalf and serves as a power of attorney for health care.  The agent has the authority to deal with any medical situation that may arise, not just end-of-life situations, and the agent can handle medical circumstances not foreseen in a living will.

A health-care power gives a next of kin or other family member additional authority to make decisions.  The power is activated when the attending physician determines that the patient lacks the capacity to make decisions on his/her own.


A gift is a legal mode of transferring ownership of property.  The general tax rule is that control of the asset must transfer as well as the title of ownership for a gift to be completed.  For federal estate tax law purposes, a gift is a transfer of property for less than its full value and includes financing the sale of an asset using below market interest rates. 

To stem taxpayers from giving away their wealth in advance of death to avoid estate taxes, gift tax rates are exactly equal to the federal estate tax rates – very high.  Paying gift tax should be avoided because the federal estate tax system at least affords a step-up in basis for the estate asset; a gifted asset retains the donor's original cost basis. 

Systematic lifetime gifting is a common estate transfer technique than can significantly reduce your taxable estate and shift the value of future appreciation to the next generation.  In Pennsylvania, an asset is excluded from the donor's taxable estate one year after a gift is made and thus avoids inheritance tax.  A gift to a qualified charity can generate a significant charitable deduction reducing your taxable income while avoiding any capital gain taxable income embedded in the asset. 

Each taxpayer can gift a small amount each year that is not subject to gift tax as well as a lifetime maximum amount of cumulative taxable gifts that are exempt from gift tax.  However, certain types of gifts are not taxable and do not count against the lifetime maximum.  Examples are payments of medical bills or tuition (only) by the donor to the institution directly on behalf of the donee.

Charitable Giving

Defining your charitable goals, developing the right strategy to make them a reality and enriching the lives of others can all be a satisfying planning experience.  Charitable giving creates an opportunity for your entire family to get involved in family philanthropy and encourage a tradition of giving. 

Any beneficial transfer to a charity, either during your lifetime or at death, should be considered in the context of your comprehensive wealth plan.

For instance, there are distinct advantages to making outright charitable gifts or you could employ an irrevocable trust to execute advanced charitable giving techniques such as a charitable remainder trust.
The best assets to consider gifting to charity are appreciated ones so that you can avoid capital gain tax on the disposition while taking a charitable income tax deduction for the gift. 

There are a host of different charitable giving techniques established in federal tax law to foster charitable gifts.  Donor advised funds, charitable remainder/lead trusts, charitable gift annuities, and private foundations are examples of common tax-advantaged charitable giving techniques. 

A wealth replacement strategy, which combines a charitable trust with life insurance owned by an irrevocable trust outside of your estate, is a time-tested technique to recognize a favorite charity, maximize income tax benefits, generate a steady income stream for you from the charitable trust and replace the value of relinquished asset for your heirs with income-tax free life insurance: a win-win-win-win proposition.

Death Taxes

The first estate tax was enacted in the 1860s as a modest levy to help pay the costs of the Civil War.  Throughout our history, the imposition of a federal estate tax has been a contentious political and social policy issue and certainly remains so today.  There are some benefits to our current estate tax system, however.  The step-up in cost basis for assets transferred via the estate process can eliminate significant unrealized capital gains for your heirs, especially for estates not subject to estate tax. 

While current lifetime exemptions for federal estate and gifts are high, state death taxes must be considered.  For example, Pennsylvania imposes an inheritance tax on its residents.  The inheritance tax has some unique characteristics that require specific planning techniques to limit its financial impact on your estate. 

In addition, effective death tax planning can reduce the financial impact of both estate and inheritance tax that would be levied on your estate.  Complicating the death tax issue is the income tax liability embedded in retirement investment vehicles like 401(k) plans, IRAs and annuities.  Income tax liability due at death of the account owner can have a devastating impact on the after-tax value transferred to your heirs.
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Securities offered through Cambridge Investment Research, Inc., a Broker Dealer, Member     FINRA/SIPC.   Investment Advisory Services offered through Cambridge Investment Research Advisors, Inc.  Cambridge and Harvest Rock Advisors, LLC are not affiliated.  Cambridge does not provide tax or legal advice.

This communication is strictly intended for individuals residing in the state(s) of DE, FL, IL, KY, ME, MD, NJ, NY, PA and VA. No offers may be made or accepted from any resident outside the specific states referenced.

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