Five Tips for Planning Your Estate

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March 4 (Bloomberg) -- Joanne Johnson, senior wealth adviser at JPMorgan, discusses what you need to know when planning your estate. She speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Great to see you.

It is one of those events where you don't necessarily want to look forward to.

Your demise or anybody else's demise but you were just saying that planning for your estate is also about planning for your investments currently.

Can you explain how those two things come together?

Estate planning is the ultimate wealth management exercise.

At the j.p. morgan morgan private bank, we quantified the benefits of estate planning.

A family that just uses four basic strategies can increase the wealth they give to their families i-22% -- by 22% or setting your investment by the portfolio would have to outperform the benchmark for 25 years just to keep up with the families that get the basic estate planning.

You can increase the amount of money that is available for you and your family if you follow some guidelines?

You don't have to worry about whether the market goes up or down.

This is do the paperwork, spend the time, you will be rewarded later on.

One is you have to organize and understand what your assets are.

Know when your assets and how they will be taxed is really important.

People have financial assets, they have mutual funds, they have a home.

There are certain assets that are surprises and i would like people to be aware of to assets that are taxed in a way they don't expect.

One is life insurance.

When you run a life insurance policy you have the beneficiary.

The beneficiary receives that money and never one tells me, that is outside my state.

Is actually not.

If you out -- if you own the policy and paid the premiums on it, the full amount is subject to estate tax.

If the policy is owned by life insurance trust, the policy proceeds will not be subject to estate tax.

On very simple fix but many people don't do it.

Having this trust is like having a third party robotic independent person that owns it.

You get to control it but you don't necessarily have the beneficiary amount included in your estate.

That is right.

The second has set our retirement accounts.

Iras, 401(k)s. they are also subject to income tax.

What that really means the families is that ira has been growing and has been serving the family so well for years will be eroded by 70%. you can think about converting to a wealth ira which means paying the income tax on it today and it will be subject to estate tax but they will not be subject to income tax.

You can think about stretching out the payments of that ira after you were gone for the benefit of your children or even grandchildren.

That gives a lot more economic value.

The account lives on almost in the form of an ira at the beneficiary of that account, and you have to noted, the beneficiary would receive me be the income and not be subject to the same kind of lump-sum tax.

Collects you stretch it out over time -- you stretch it out over time.

Many of the driving forces is the tax law.

You also mentioned as part of the exercise, you have to get organized and get your paperwork in order so that it is not a scramble at the last minute.

Getting organized is critical.

That we understand what your goals are and that requires a good deal of thinking.

You work with a lawyer specializing in this area.

You become very organized about where your assets are, documenting where they are.

You put documents in place.

Wills, trusts, and powers of attorney.

They are very important.

Living wills so that if you're not able to do what the health care provider, your wishes will be followed and you will point the right person to make those decisions.

This is part of the planning process.

What about reducing the actual value of the estate because the federal inheritance laws and the taxpayer is above 5 million for the total estate.

You are right.

Everybody has an exemption against the 40% estate tax of $5.34 million.

Married couples is $10.68 million.

There are two states that have taxes.

Connecticut and minnesota.

There are 20 states that have a state taxes.

How do you lower your tax bill?

That is one of the questions you have to ask.

The last one is philanthropy because a lot of people like to leave something to some of the causes they support.

A social legacy is very often just as important as a tangible legacy.

Identifying charities, knowing that you will put the right kind of assets to those charities.

Cash is always a great asset because you get a full charitable deduction.

People don't realize to be able way appreciated stock, you don't pay the capital gains tax on it.

Incorporating philanthropy into your plan is a great plate -- way to convert the dollars that might be going to the government.

You pay tax in the government --

This text has been automatically generated. It may not be 100% accurate.


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