ST. LOUIS, Mo. _ During the working years, most investors are focused on saving and investing as much as possible to reach their retirement goals. But when it comes to estate planning, how can you help ensure that you`re protecting and preserving what you`ve worked so hard to save?
Asset protection estate planning involves a combination of legal, tax, and investment strategy, and the help of professionals.
Kyle Jones, Financial Planner at Wamhoff Financial Planning & Accounting Services, explains some of the key asset protection strategies to consider.
An Irrevocable Trust with a Portfolio of Diversified Municipal Bonds
• Assets within an irrevocable trust that produce income greater than $12,000 per year that is not distributed to beneficiaries can have a tax rate as high as 39%
• To avoid paying additional taxes a portfolio of diversified municipal bonds is often a strategy used because municipal bond interest payments are not taxable under federal law.
• Municipal bonds can be purchased individually or in a mutual fund or ETF structure, which offer a great deal of liquidity, making them attractive for asset protection planning.
• Municipal bonds purchased in the state where the trust is domiciled are generally exempt from federal and state taxes.
• Municipal bonds carry inflation risk, interest risk and credit risk, so before investing, you and your financial professional must confirm they would be suitable for your unique situation.
Fixed Annuities
• Another asset commonly used in irrevocable trust investment planning are multi-year guaranteed annuities – fixed annuities which pay stated interest rates but defer taxes.
• Tax-deferred annuities help prevent irrevocable trusts from having income that is taxable at the highest interest rate.
• Fixed annuities are generally suitable for most investors who are interested in tax deferral and principal safety, and are typically considered to be one of the safest investments available.
• Multi-year guaranteed annuities do have risks associated with them including interest rate risk, insurance carrier risk, and liquidity risks as most fixed annuities have a surrender schedule with large penalties should an investor wish to access their funds early.
While these investments may not be suitable for all investors, or all asset protection investment strategies, they can be potent when investing inside of an asset protection trust or irrevocable trust.
However, the best strategy to approach these situations is to work with an advisor who is experienced in elder care estate planning who will prepare individualized plans that are appropriate for your unique needs.
