Partner Brian Donnelly Discusses Estate Planning

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Brian D. Donnelly, CPA, is a Tax and Advisory Services Partner. He has worked in public accounting for over 30 years.

Brian earned his B.A. degree in accounting from Cal State Fullerton in 1983. He earned his M.S. degree in taxation from Golden Gate University in 1992. He earned his CPA designation in 1986.

Brian’s expertise is in assisting clients with estate and trust planning. He also specializes in tax compliance, tax planning for closely held domestic companies, mergers and acquisitions. He recently discussed the firm’s work with estate, gifts and trust compliance and planning.

What are some key elements of a good estate plan?
To put together a good plan, you must begin by identifying a trusted individual as successor/trustee and executor/executrix. You can then communicate your wishes to this person once your plan is in place. You must also identify major assets, and specify who receives them upon your death or in some cases, as gifts during one’s lifetime under a succession plan.

A good plan can help prevent chaos in the lives of your heirs when you’re gone. Often times, there are hurt feelings among beneficiaries, however, with a well-organized and crafted estate plan document, conflicts amongst family members will hopefully be mitigated.

What is a trust? Are trusts only for the wealthy?
A trust is a vehicle that allows you to transfer property according to your wishes after you die. They’re not just for the wealthy; clients of more modest means can benefit from trusts. They help eliminate the probate process in California (and other states), which is expensive and may not distribute property according to your wishes. Furthermore, with certain types of trusts, assets can be protected from creditors.

How have federal “death taxes” changed in recent years? How might they change again in the future?
This year, 2012, is a unique tax year for federal estate taxes. There is a $5,120,000 federal lifetime state and gift tax exemption, the amount which (cumulatively) may be transferred free of federal estate and gift tax by an individual during his lifetime. This amount is scheduled to drop to $1 million on January 01, 2013. We’ve been reminding our clients of the importance of looking at the benefits of gifting this year, as it appears that the benefits will sunset in the New Year.

What level of life insurance should someone have?
This is a very personal decision, based on a person’s need to mitigate risk. This could be the risk of not having money for your heirs to go to college, or enjoy a certain level of lifestyle. Also, a younger person, in the event of pre-mature death, will want to make sure his heirs can cover the cost of the mortgage and other obligations, and to allow for a certain transition time for the family, in the event of this life change.

Each individual should evaluate their personal needs and risk tolerance to decide if life insurance is necessary in their overall estate plan. Furthermore, there are special types of trusts that are created to own policies if it is determined to be necessary.

What are some ways to give gifts tax-free and reduce the taxable value of your estate?
First, make an annual gift in the amount of $13,000 to one or more individuals. Also, a parent or grandparent can assist their children and grandchildren with expenses in ways that are not deemed to be gifts. For example, if an adult child has a medical bill, and the parent pays the provider directly on behalf of the child. Or, a grandchild is going to school, and the grandparent pays the tuition directly to the school on the grandchild’s behalf. These payments are deemed to be ascertainable standards that should not be made directly to the child or grandchild.

What are some ways to give charitable gifts through your estate?
The typical way is to name a charity in your will or trust which will receive the gift upon your death. Because of the income tax effect to taxable beneficiaries on IRA distributions, one may consider making the charity the primary beneficiary of IRA or retirement accounts.

What experience does WNDE have in estates and trusts?
This is a complex area, and it requires professionals with ample experience. WNDE has qualified professionals to assist clients in their estate planning needs. From the beginning of my career, I have worked in the compliance and planning associated with estate, gift and trust tax aspects of our practice. Over the years, WNDE has developed a successful practice of assisting clients with all facets of tax compliance, planning and assisting clients with administrating their estates. About 12% of our company’s business is in estates, gifts and trusts, and it’s a natural extension of the services that we provide to all of our clients in our practice.
If you have any questions, give us a call, and we’d be happy to see what we can do to help you.

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