SHARMA ASSOCIATES, INC.

What is Estate Planning?

We all work hard to create wealth and build up our assets, - Now we want to be sure that our property / assets / wealth will go to our heirs for their benefit and enjoyment or any other individual or organization we want to leave our assets for. To do this we need to keep taxes and expenses down. We must find ways to minimize not only estate taxes, but also to minimize the income and estate tax consequences to our heirs. Gift taxes may also come into play. This basically is Estate Planning.

The Basic documents for estate planning:

Will or pour over will.
Regular or springing power of attorney.
Advance medical directive or Living will.
Revocable (living) trust.
Irrevocable life insurance trust (ILIT)

(How a family transfers its wealth can be one of the determining factors in legacy to children, grandchildren and future generations, as well as to society. While estate planning process can be quite technical in nature with emphasis on the transfer of assets, at its core it is fundamentally about the transfer of the values and priorities of those who created the wealth.)

Generally speaking, individuals and families who are planning for the transfer of their wealth will want to focus on two broad areas:

What tools and techniques will minimize estate and income taxes so that one can transfer the maximum amount of wealth to heirs, especially in light of ever changing estate tax laws.
What emotional issues and personal values matter to me? How can I convey these so that my children or grandchildren have strong work ethics, receive joy in their pursuits and have healthy self-esteem?

Wealth Transfer tools and Techniques

Bypass Trust
Dynasty Trust
Qualified Personal Residence Trust
Charitable Lead Trust
Wealth Replacement Trust and Charitable Remainder Trust.

Factors to Consider when creating trusts:

A consciously structured trust can help children learn both social values and management skills. According to the experts at The Inheritance Project, the three factors that parents may want to balance in the estate planning process to ensure healthy and heirs are:

Children's need for autonomy: Trusts can range in flexibility from irrevocable generation skipping trust agreements, in which heirs have no control over the assets, to certain kind of simple trusts that allow heirs to use the funds as they wish.
Protection of estate: Tax avoidance is the main reason why people create trusts. But the trust structure that gives the most tax-savings may not necessarily promote the emotional well being of heirs.
Children's need for reasonable protection: The incentive trust is gaining in popularity. It allows parents to protect their heirs from some of the negative consequences of inheriting such as being unmotivated to work or to achieve certain levels of education. The beneficiaries receive the money, but only under certain circumstances.

It is important to work closely with an advisor, legal counsel to determine which structure makes the most sense for everyone involved.

Charitable Remainder Trusts (CRT): An Estate Planning Tool

Control your wealth using the Charitable Remainder Trust.

What is CRT?

CRT is a Tax-Exempt Trust, provides income tax deduction.
Helps to avoid long-term capital gain or estate tax.
Provides tax-free compounding.
Pays income for life and a possibility of increased spend able income.
At death reminder goes to the charity or charitable foundation.

Major Benefits of CRT

Keep more of what you earn
Leave more of what you keep
Control the part you cannot keep

Family Foundation: An Estate Planning Tool

One of the most popular estate-planning tools in America today is Family Foundation

Those people, who have great amount of wealth, are not nearly as much concerned passing on their wealth / assets to their children as much as they are passing on their family values to their kids. They want their kids to inherit their values. If you want your kids to inherit your values, there is one tremendous way you can orchestrate that.

Set up a Private Family Foundation

Make your kids or grand kids, director / trustees of that foundation.

Your kids will immediately learn the following:

How to be responsible community leaders
How to be responsible to handle or responsible for large sum of money
And to be Philanthropist, thus a happy person and a great citizen
Board meeting once a year, which will help to bring the family together and these board meeting can be arranged during holidays such as Thanksgiving or Christmas time (or any other religious holidays) to bring the together.

Some have become very creative with this concept of board meeting of foundations and arrange such meeting at a place of their choice, and they are going there for the board meeting as well as to have recreation / vacation for the family. This is the wonderful opportunity to bring family together do something really important, which most of the people are much concerned about that is passing on the family values to next generation.

Charitable remainder trust (CRT) and/or Spousal/Marital trust beneficiary can be family foundation. Funds from CRT or other trusts can flow directly into the foundation without any taxes such as Estate or Capital gain taxes. Family foundation controls those assets forever for the benefit of the charities. Trustee can be choosing the board of director for the foundation, which can be his/her children.

Board of directors then every year decides, which charities in the community will receive the grants from the foundation.

Family Legacy through Family Foundation

How to Achieve Lasting Significance
Instead of having the Charitable trust distributed to charity in the form of a one-time gift, the remainder flows directly to a foundation that will make perpetual gifts to charities.
Family Controlled Influence
Once a family foundation is established, a board must be formed to manage the foundation's assets and direct the annual grant to charity. Foundation must distribute a minimum of 5% of the value of its assets each year. Family controlled influence, generation after generation.
Financial Parenting
By establishing a family foundation, parents can have a lasting influence on their children. Children by being on the board of the foundation, gives them the responsibility for managing the foundation's assets and determining which charities should benefit from the foundation's annual distribution affords the parents a unique opportunity to teach them:
1. Problem solving
2. Administrative and Management skills
3. Investment Experience
4. Build their Self-esteem and foster Leadership qualities
5. Making them much better citizens by providing them opportunity to learn family values and social responsibility

In short, a family foundation can provide a family with a wonderful legacy and is perhaps the most powerful example of how donors can maintain ultimate control of their social capital.