Time To Check The Clauses' In Your Will

At the same time, check on the fine print in your will - assuming you have one. Here are some points for review:

The so-called "simultaneous death clause" in a will can be important for children in the family. This applies to an accident in which both husband and wife lose their lives. In such cases, the heirs under most state laws lose the benefit of the marital deduction - which allows 50% of a man's estate to pass to his wife tax-free. There's a way to hang on to this deduction, however, even in the case of simultaneous death. Make sure your will contains a clause specifying that in a common disaster, it shall be presumed that your wife survived you.

How much money might this save? With a taxable estate of £200,000, for example, willed 50% to the wife and 50% to children, the children's local tax bill would be £31,500 without the marital deduction - and only £9,600 with it. The saving: £21,900.

Note: When husband and wife own nearly equal amounts of property subject to estate tax, don't use the simultaneous death clause. Instead, each parent's will should leave the property directly to the children.

There are many other ways to ease the estate tax burden on your heirs. For one thing, you can make your children irrevocable beneficiaries of your life insurance - and assign full ownership of the policies to them. This will remove the death benefits from your taxable estate. By careful planning, you can usually avoid gift tax on transfer of the policies.

A long-range program of gift-making is an old favourite for lightening the tax load. Say a businessman and his wife join in a 10-year plan to give £6,000 a year to each of their three children for nine years - totalling £162,000. In the 10th year, they give another £38,000 to make a total gift of £200,000 - entirely tax-free, thanks to their individual exclusions of £3,000 per child yearly plus their individual £30,000 exemptions over a lifetime. Since the parents together have a £60,000 lifetime gift tax exemption, this plan has an added advantage: It leaves them £40,000 of the exemption for future gifts. The tax on a £200,000 estate left directly would come to £48,000.

There can be sizable savings in a one-shot gift. Say that you cut £50,000 from a £250,000 estate. This means money taken out of the top bracket of the estate tax - and the family saves £15,000 (tax drops from £45,000 to £30,000). If you take £100,000 from such an estate - say the husband gives full ownership of his life insurance policies to his wife - the family will save roughly £30,000. Here there's little chance that a gift tax would apply; for tax purposes, only the current cash value of the insurance is given away (see below).

But estate planning is not without some cloudy areas. For example, when you give your wife an insurance policy on your life, the proceeds won't be in your taxable estate. But be sure her will is adjusted to allow for it. Her will should not give you an interest in the policy, even as trustee. A new case says that if you get such an interest and she dies first, the proceeds could later go into your estate.

As for group coverage, the IRS has ruled that you can assign your company life insurance and get the proceeds out of your estate. But there's a hitch. State law must permit the move, and most state codes make no mention of this. You can go ahead, but get advice on local technicalities. Another device is to sign over full ownership on your home to your wife - and take its value outside your taxable estate. Recent court cases have held, in effect, that this is feasible. But again, check with your adviser. There's a careful hand required here.

Of course, it's also important to make sure your heirs can readily pay any estate taxes you can't avoid. This means cash. And you don't want the heirs to be forced into unprofitable sales of assets such as real estate or securities - stock in a closely held family corporation, in particular. One method is to use insurance with a trust agreement attached. Make the trust the beneficiary of a life policy; on your death, it takes title to the estate assets, provides tax money from the insurance benefits, and holds the assets until they can be sold at the best price.

In a family business, look into buy-and-sell agreements with business associates - to supply ready money without permanently diminishing the family's interest in the company. Such agreements should specify a fixed stock value - and should be checked carefully with a tax adviser.


Estate Planning

For the Long Haul

Plans that fall apart

You're wise to review your estate plan, say the trust officer, the tax specialist, the Accountant, the solicitor - and even your wife. The trouble is that many a prosperous man has precious little to review.

Robert Ferguson, executive Director of FDS and a top planning authority, points out that too often the executive or professional man lacks even a basic plan, let alone one that's of maximum quality. And a leading author on estates, Robert Brosterman, adds: "In a typical large corporation only 10% of the management group will have all-out plans that really conserve family wealth."

An executive... see: Estate Planning