Start a Living Trust
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Portable proceedings are a matter of public record. Therefore, many people seek to avoid portable simply to maintain their privacy. Such individuals might consider a living trust, which allows the estate owner’s assets to pass into the trust while he or she is alive. The person who opens the living trust can be the self-appointed trustee and beneficiary. The trustee can then manage the assets and live off the income the assets generate.
Make Annual Gifts to Children, Heirs
Each year, you can give away up to $10,000 to any person you choose, such as children and grandchildren, without incurring a gift tax. Your spouse qualifies for the annual gift tax exclusion, as well. Together you can give up to $20,000 every year to each of your children.
For many parents, gifting offers an effective way to lower estate taxes. The money you give away is removed from your estate. If left there, the money could be taxed at a rate of 35% to 55% when you die and it passes on to your children.
Open an Irrevocable Life Insurance Trust
To offset the money the children are likely to incur in estate taxes, or to protect them from having to sell an illiquid asset (such as a business) to pay the estate tax bill, many parents set up an irrevocable life insurance trust. Such a trust is funded with a life insurance policy purchased after setting up the trust. The proceeds from the policy will be free from estate taxes. To maximize the effectiveness of this product, you might consider purchasing a “second to die” policy, which doesn’t pay off until both parents die. A second to die policy is less expensive and therefore provides more coverage for every dollar you invest for premiums. It is cheaper because premiums are based on your spouse combined life expectancy, which, of course, is longer than either of your individual life expectations.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
