Ten guidelines to consider in planning your estate

You may not think of yourself as wealthy, but when you've accounted for your home, investments, personal property, retirement accounts, and all insurance that you own in your name, you may have assets over $2 million - and that means you're "wealthy," according to the IRS.

For U.S. citizens, in 2006, every dollar (worldwide) over $2 million may be subject to federal estate taxes of up to 46 percent.

If a majority of your assets are in retirement accounts, including qualified plans and IRAs, your estate could lose over two-thirds of its value to federal estate and income taxes, leaving your beneficiaries with a much smaller portion of what you worked so hard to accumulate.

You may want to consider these guidelines as you plan your estate:

Prepare a Will. Be sure it keeps pace with changes in your own personal circumstances and adjustments in tax laws. Marriage, divorce, birth, a move to another state or a change in your finances should signal an immediate review and possible updating of your will.

Use Your Estate Tax Exclusion. The IRS allows U.S. citizens to pass the first $2 million of assets in 2006-2008 (increasing to $3.5 million in 2009) to their beneficiaries, free of federal estate tax. Be sure to plan properly so that both spouses use their estate tax exclusions.

Title Assets to Avoid Probate. Holding property in joint tenancy with right of survivorship is a simple way to avoid probate. Joint tenancy with the right of survivorship is a form of property ownership by two or more persons. When one of the joint tenant owners dies, his/her interest in the property automatically passes to the surviving owner(s).

Monitor Retirement Plan Assets. If you plan to gift your IRA or qualified plan to heirs at death, the account could lose up to two-thirds of its value to federal estate and income taxes. Taking distributions from your IRA or qualified plan and purchasing a life insurance policy held in an irrevocable life insurance trust (ILIT) could be a consideration. That way your heirs receive the insurance death benefit free of estate and income taxes (if the ILIT and plan are properly designed), instead of a fraction of your IRA or qualified plan.

Gift Away What You Don't Need. Lifetime gifts to family members or others can reduce your potential estate tax liability by removing the gifted assets and any future income and appreciation on those assets from your estate. You are entitled to transfer up to $12,00 per person each year without incurring any gift tax or reducing your lifetime gift tax-exclusion amount. (Spouses together may gift up to $24,000.)

Keep Enough Assets Liquid to Satisfy Estate Taxes. Generally, the IRS requires that any federal estate tax liability be satisfied within nine months of the date of death, and that payment must be in cash. There are four typical sources from which funds can be obtained: cash reserves, loans and liquidation of assets or life insurance proceeds.

Hold Life Insurance in Trust. If owned by a trust or third party, life insurance proceeds may be income tax free to the recipient and not subject to estate tax. However, the proceeds will be subject to estate tax if you (as the insured) own or have rights in the policy. Purchasing the policy within an irrevocable trust may prevent life insurance proceeds from increasing your estate tax liability.

Know What You Have and Where You Have It. Keep copies of your important papers and make sure that appropriate parties know where these papers are kept.

Choose Executors and Trustees Wisely. Selecting one family member among several may create unforeseen problems down the road. Fiduciary duties may call for the expertise, impartiality and independence of a corporate trustee, at least as co-trustee.

Meet with Your Financial Advisor. Finally, discuss your estate planning objectives, concerns and fears with your financial advisor, as well as your tax and legal advisors, so that you can develop a plan for effectively transferring wealth to your heirs.

For more information, e-mail william.a.creekbaum@smithbarney.com or call 689-8700.

• William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of SmithBarney, a financial services firm serving Northern Nevada at 6005 Plumas Street, Ste. 200 Reno, NV 89509.

Smith Barney does not provide tax and/or legal advice. Please consult your tax and/or legal advisors for such advice.