ABOUT FINANCE
10 Strategies for Preserving Personal Wealth

By Michael L. Brunner

Are you wealthy?

You may not think so, but when you have accounted for your home, investments, personal property, retirement accounts and insurance policies, your assets may total more than $1 million-and according to the IRS, that means you are "wealthy."

In 2003, every dollar over $1 million may be subject to estate taxes, up to 49 percent. If the majority of your assets are in retirement accounts, including qualified plans and IRAs, your estate could lose more than 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.

Consider these strategies to help preserve your wealth:

1. Prepare a Will. Be sure it keeps pace with changes in your 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.

2. Use the Estate Tax Exclusion. The IRS allows U.S. citizens to pass the first $1 million of assets in 2003 (incrementally increasing to $3.5 million by 2009) to their beneficiaries free of federal estate tax. Be sure to plan so that both spouses take advantage of their estate tax exclusions.

3. Title Assets to Avoid Probate. Holding property in joint tenancy with the right of survivorship is a simple way to avoid probate. Going through probate may increase your estate administration expenses, delay the execution of your wishes and subject your affairs to unwanted publicity.

4. Monitor Retirement Plan Assets. If you plan to gift your IRA or qualified plan to heirs at death, either plan could lose up to two-thirds of its value to federal estate and income taxes. Consider taking distributions from your IRA or qualified plan and purchasing a life insurance policy held in an irrevocable life insurance trust. This allows your heirs to receive the insurance death benefit free of estate and income taxes (if the ILIT and plan are properly designed).

5. Gift Away What You Don't Need. Lifetime gifts to family members or others can reduce your assets and potential estate tax liability by removing the appreciation on those assets from your estate. You are entitled to transfer up to $11,000 (an amount that may be adjusted for inflation) per person each year without incurring any gift tax or reducing your lifetime gift tax exclusion amount. (Spouses together may gift up to $22,000.)

6. 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, liquidation of assets and life insurance proceeds.

7. Hold Life Insurance in Trust. If properly owned by a trust or third party, life insurance proceeds are income tax free to the recipient and not subject to estate tax. However, the proceeds will be subject to estate tax if you 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.

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

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

10. Meet with a Financial Consultant. Discuss your estate planning objectives, concerns and fears with a financial consultant, as well as an accountant and attorney, to develop a plan for effectively transferring wealth to your heirs.

Smith Barney does not provide tax or legal advice. Please consult your tax and/or legal adviser for such guidance. Smith Barney is a division and service mark of Citigroup Global Markets Inc. Member SIPC.