Tax Planning If You Know You’re Dying

This may sound morbid, but if you know you’re going to die soon, you may be able to give more to your survivors by manipulating your income today. For example, you might choose to take capital losses while you’re still alive. Because of tax law treatment at death, this can save your survivors money at tax time.

You can also make your annual, tax-deductible IRA contribution sooner than usual and give charities the gifts you’d planned to leave in your will. This removes those assets from your estate and also gives you an income tax deduction. This won’t matter to you after you’re gone, but will leave more money in the estate for your beneficiaries. (You can make such gifts even if you’re incapacitated as long as you had the foresight to include such giving powers under a power of attorney.)

You could also make charitable gifts in your will or living trust. These, too, would reduce the value of your estate and so reduce taxes.

Of course, if you’re able, you’ll also want to consider quickly implementing some of the other tax saving devices mentioned in this chapter, like interspousal transfers and annual tax-free gifts. But consider doing all this planning now, instead of on your deathbed, when you’ll have other, more eternal concerns to occupy you.

Bull or Bear?

Sometimes the best of intentions must give way to changing circumstances. Many people grew wealthier than they ever expected during the flush times of the 1990s and wanted to leave some of that windfall to good causes after their deaths. Now that tighter economic times have followed, they are concerned that their children or other beneficiaries will need more from their estates than they’d earlier believed. The kids’ businesses might have collapsed, or the value of the stock portfolio you left them might have plummeted. You can avoid having to rewrite your will or living trust every time the economic winds shift by stipulating that your property will pass to a charity contingent upon whether the estate exceeds a certain amount, with anything over that amount going to your favored cause. Even these provisions should be reviewed from time to time as your wishes and preferences change.