Florida Tech Alumni

Q. What are the benefits for me in estate planning? I'm still relatively young and do not have vast resources.

A. Careful financial and estate planning can often increase your current income primarily by cutting state and federal taxes. There are techniques that can make low-income-producing assets earn more for you. A well-thought-out estate plan can reduce inheritance taxes and legal costs, leaving more for your family and other heirs. There are many practical reasons for estate planning, but the greatest is the peace of mind that comes from knowing your affairs are in order and that you have remembered those who have been important in your life.

Q. Obviously, the university hopes alumni will remember their alma mater in their estate plans. Do most people make charitable bequests in their wills or is it mostly the wealthy who do so?

A. Many more people intend to make charitable plans than actually do. Many of us plan to do something to make this world a better place for others "one day." Through your estate plan, you can take care of "one day" today. That's what we hope our alumni will consider-perhaps leaving a scholarship in their own name that will live on to help future students, or set up a fund to support teaching in their area, or some similar bequest. Interestingly, fewer very wealthy people make charitable bequests than middle-income people. But, wealthy or not, before you take care of others, you need to take care of yourself and your family and that's why you need a plan, whether or not your university or any charity is a part of it.

Q. What is the first step in preparing a plan?

A. List everything you own and everything you owe on a net-worth worksheet. If you haven't done it before, I'll bet you'll be surprised with the results. Make it detailed enough for strangers to find every asset you own and to contact every creditor. If you use a computer spreadsheet, your net worth worksheet can be easily updated. This will be the base document for constructing your plan, writing and updating your will, and following your progress toward your financial goals. It will also come in very handy when you apply for a loan.

Q. Should my net-worth worksheet contain personal items?

A. Yes, items like furniture, art, tools, etc. should be itemized on a separate home inventory schedule with a summary or "ballpark" figures listed on your net-worth worksheet. Listing and estimating the fair market value of your home inventory is a big job, but necessary to give you the right amount of insurance protection that is a key element in financial planning for most people. This is also a great time to engrave your social security number on treasured keepsakes and to take photographs of your possessions. It's an excellent time to make notes as to which items you wish to go to which heirs as you write or update your will. Put a copy of your home inventory and net-worth worksheet in a safe deposit box, along with your will. Keep a home inventory file in which you drop receipts for purchases. Update your home-inventory worksheet and net-worth worksheet at least once a year. Tax time is a good time to do that. You should also remember that gifts of personal property such as boats, automobiles, inventory, etc. to nonprofit organizations like Florida Tech, either now or through your will, can be very beneficial to your heirs and to your university. In some cases, your heirs may not want, need or be able to afford the particular real property they receive, because of taxes, cost to operate, etc. Bequests of personal property to nonprofit organizations often increase cash availability to other heirs, particularly if the value of the estate is taxable.

Q. So now that I know where I am financially, what's next?

A. Decide where you are going and set your goals. It's the most important part of the planning process. You should spend some soul searching time thinking about, writing down and quantifying your personal financial goals. This is the time to ponder what you realistically want to accomplish with your life, for yourself, for your family, for others. Everyone has different goals, but most include financial independence while healthy enough to enjoy it, security for your family, education for the children, protection for elderly parents and a desire to leave something behind for others. Only you can decide your goals and their cost. You'll probably want to set a target date to retire. Calculate how much you will need from all sources to do so. (Your retirement program administrator should help you do this.) The same is true for major purchases, such as when you plan to pay off your home, fund college expenses for the children, purchase a vacation home, boat, etc.; estimate what you need and when. Now set dollar- and time-savings goals for each. Budget how much you will need to save each month to reach your goal. Decide what your priorities are, because you'll unlikely reach any of your goals unless you do. Now take the age-old advice "pay yourself first." Start now and set aside something that moves you toward your goal with every paycheck, tax refund and every windfall. Keep a record of your progress toward every goal and don't be hesitant to discuss your goals with family and friends. Each time you re-confirm a goal, you are taking a step toward reaching that goal.

Q. I know where I am and where I want to go financially. Why write a will until I get there?

A. Think of your will as your "goal guarantee." Your estate can reach your goals even if you don't. It's an insurance policy for your goals. If you don't make a will, the state will distribute your assets and you can be almost certain that your life's goals will not match the state's plan.

Q. Do all my assets need to go through my will?

A. No. If you have jointly owned property with your spouse, such as a home, your spouse automatically receives it at your death. Life insurance policies and your retirement assets or deferred compensation plans are often paid directly to a beneficiary whom you have named. Assets that can avoid probate and pass quickly to your heirs, particularly life insurance, are especially helpful to those you leave behind. However, assets that pass to heirs at different times and through various channels complicate the estate plan and require careful and special coordination to avoid distortions in the estate plan.

Q. Laws on estates and taxes differ by state. How can I draft a will that will be good anywhere I may live?

A. Because laws change, there are no guarantees that you can. However, there are a few basics for any will. Use these to help construct a rough draft and take it to an attorney for review and rewrite. There is too much at stake to take chances with a "home grown" version. The basics are: All wills should be in writing and one original should be carefully protected. The original will be the document the courts will use. It must be signed and dated. It should state clearly that it is the testator's will. There should be at least two witnesses who are not included as beneficiaries to sign at the same time the testator signs, to verify what the document is and that it was not signed under duress, etc. It is a good idea for wills to have a contingent beneficiary (an individual or organization to receive remaining property after other bequests have been made or if other bequests cannot be made). Of course, Florida Tech would appreciate being made your contingent beneficiary. A notary is not required in some states, but it is recommended to have the will notarized in accordance with local law.

Q. But I do not yet have sufficient assets to justify the cost of writing a will. Is there a minimum net worth that I should have before going to the expense of a will?

A. No. The cost of not having a will is much higher than preparing one. If you have a smaller estate, you have even more reason to have a will to protect it for your heirs or for the causes in which you believe. Without a will, you lose control of your estate and give to beneficiaries you would not have otherwise chosen. Drafting a simple will with your attorney is inexpensive and most attorneys will quote a fee in advance of doing the work.

Q. With an unlimited marital deduction, I should not have to worry about federal estate taxes, so why write a will if my spouse will receive my estate anyway?

A. True, there is no estate tax on the first spouse to die, because of the marital deduction, but the tax problem is compounded for the survivor. A carefully drafted will can usually save taxes for both spouses, but most certainly for the last to die. Both husband and wife should have a will.

Q. When you have a will, doesn't everything have to go through the courts in a public way?

A. Actually, your will is public after your death, but the inventory is confidential in most states (including Florida). Thus, it is no longer possible to determine the value of an estate by examining the court file. Trusts can be utilized in an estate plan to provide greater confidentiality. Trusts are not required to be filed with the courts.

Q. How often should you review your will?

A. It's a good idea to do it each year at tax time and to share a copy with your tax preparer, financial advisor and attorney. He/she can spot changes that should be made due to tax law changes. More importantly, because they know your financial affairs, those professionals can suggest other "taxwise" ways to accomplish wishes stated in your will that you may not otherwise consider. Financial professionals who know your goals and circumstances can usually find income and estate tax savings that the average taxpayer will overlook. Other events that almost always require an update to your will is change in marital status, birth or death of a family member, and buying or selling major assets. People appointed as guardians, personal representatives and trustees should be reviewed annually to determine continued suitability. As children become independent, you can sometimes reduce life insurance and change allocations under your will and consider trusts to accomplish your goals.

Q. What are the basic elements of an estate plan?

A. The most fundamental elements are life insurance and your will. These are usually a part of every estate plan and can guarantee that whatever happens and whenever you die, your plans for family, friends and organizations can be fulfilled. Other elements can be as sophisticated as needed to reach your goals. They include a trust that manages assets for you during or after your life. Most people have employee benefits, such as qualified retirement plans that are major estate planning elements. Your financial advisor should review them when assisting you with your planning. Any asset you will receive at some future time, or any right to purchase or receive an asset at some future time that can be transferred by you to another person or organization, is an estate plan element. All must be considered when putting the plan together to take maximum advantage of tax laws, be fair to family and to guarantee your estate is not depleted by poor or inadequate planning.

Q. I prefer not to tell any of my heirs or charities that I have remembered them in my will, because I may have to change plans later. Isn't this wise?

A. Not always. Most charities will keep your plans confidential. They do not base their budgets or plans on receiving your specific bequest. So if your circumstances change, it does not harm the charity. Charities recognize and respect the fact that wills sometimes need to be changed for personal, family or financial reasons. Likewise, your heirs should expect and encourage you to revise your will from time to time, to protect you and your personal goals first and foremost. It is better to tell a person or an organization of your plans rather than having them surprised after your death. There is always a chance the charity or individual may not be able to follow your instructions when you restrict a bequest, so having their agreement in advance is a safe and wise move. The charity may have suggestions that could improve the bequest that you and your tax consultant may not have considered. In some cases, universities can develop matching funds or attract funding from others if they are aware of an eventual bequest. Those you remember would prefer to say thanks to you rather than to your personal representative. If your university is in your will, tell them so and experience the joy of giving while you can take pleasure in it. The decision to tell family members and other heirs of estate plans usually is based on their need to know and their maturity. It is always a good idea to share your plans with your proposed personal representative and get an advanced agreement to serve. The clearer you are with your wishes, by will or in person, the less likely to be challenges and family arguments upon your passing.

Q. I don't need as much life insurance now that I have adequate resources for my family. Are there ways to put those old policies to work?

A. Yes, you can cash most policies in for their surrender value, or you can give the policy to Florida Tech or another nonprofit organization and take a tax deduction that you can carry over for up to five years. (The gift is deductible up to 50 percent of your gross income each year.) In addition to the extra spendable income you will realize from the deduction, you can stop paying premiums and save that much more. If you prefer to continue premiums after giving in the policy, those are fully tax deductible as well, if paid to the university. The tax deduction for contributing a policy that is not a paid-up policy is approximately its cash surrender value. For gifts of life insurance policies to Florida Tech, you will normally be listed for donor recognition purposes for the face value of the policy. You may tell Florida Tech how you wish the proceeds used. For instance, you could fund a permanent scholarship in your name or your family's name that will live on to help students for generations to come. The university has many options with gifts of life insurance. We can cash it in to fund any project you wish to support, we can borrow against it for current needs or convert it to a paid-up policy.

Q. Florida Tech gets a lot of boat gifts. Can boats be contributed through an estate gift as well as given now?

A. Absolutely. Because Florida Tech has a marine-related curriculum, the federal government allows gifts of boats to the university to be deducted from income or estate taxes at full fair market value. This would not be the case if it were given to a nonprofit organization that sold it within two years. You could then only claim the price the nonprofit organization received at the sale. In a gift of a boat to Florida Tech, via an estate, the fair market value is also deducted from the gross estate for federal estate tax purposes, which can leave your heirs more spendable resources. The same is true of any asset that can be readily used within our educational purpose. This is one reason why it is important to let the university know your intentions before designating a gift or bequest so we can verify whether the gift is one the university will be able to use.

Q. Could we leave our residence or farm to the university if our children do not want to live in it? Would we benefit from a tax deduction in our estate?

A. Yes, in fact, a bequest of a residence to a nonprofit organization is often the most tax advantageous move you can make to give your estate a very large deduction. This leaves more liquid assets for heirs and reduces the burden of maintaining and selling the home by the personal representative, often at a hurried pace and at a reduced sales price. If you are certain your children will not want to live in your home after your death, you have another even more "taxwise" option to consider. It's a gift of property with lifetime rights. It can eliminate or reduce your federal income tax and estate taxes. You simply agree to contribute your home to Florida Tech now. You may live there and enjoy all rights of ownership (a life estate) for the rest of your life. The university does not take possession until after your death. You, however, have a significant tax deduction now that can be carried over for years, minimizing your taxes and leaving greatly increased spendable income. For estate tax purposes, your gross estate is reduced by the fair market value of your home. If you are concerned about removing such a valuable asset from the estate your heirs will inherit, you can purchase a life insurance policy with a death benefit equal to the value of the home with the extra income you will have and name your heirs as beneficiaries. This guarantees that your heirs will not have to have a "fire sale" to liquidate the home and your distributable estate cannot be diminished by the gift to the university.

Q. I hear there are ways to make a gift, take a tax deduction for full fair market value of an asset and receive an income for life. Is this legal?

A. Yes, these gifts are what I call the last great tax loophole. All of these trusts have in common an irrevocable agreement to give an asset to this university in exchange for the university's irrevocable agreement to pay you or your spouse or child or any other person you designate a lifetime income. All such gifts avoid capital gains tax on appreciation of the asset, no matter how much they appreciate in value over the years. The names and variations on these trusts are complicated and often confusing, but the concept of each is simple. A charitable remainder unitrust (CRT) pays you a pre-determined and pre-agreed-upon rate of return based on the trust assets revalued annually. A charitable remainder annuity trust (CRAT) does the same thing, but it pays a fixed amount every year for your life. People who want to beat inflation usually prefer the CRT and those who want to be guaranteed a fixed amount (for instance, to pay off a fixed mortgage) choose a CRAT. There are many variations in charitable trusts. All should be tailor-made to your needs. One type of trust can be funded with real estate or other property. The university sells the land and funds the trust that provides you a lifetime income. You avoid capital gains tax and you don't have the hassle of selling the property. This is called a net income charitable unitrust (NICRUT). You could request a make-up provision that would replace income you did not receive while awaiting the sale of the property. This is called a net income with makeup charitable remainder unitrust (NIMCRUT). This will allow you to recover or "make-up" the return you would have received during the years the land was on the market. This is great for those gifts of land made when real estate sales are slow.

Q. Who most often takes advantage of charitable trusts?

A. Anyone who has an asset that is producing a very small return may be able to increase their earnings and take a charitable deduction with a charitable trust. People within 10 years of retirement are often excellent candidates. A childless couple, or a family whose children are grown and financially independent or who have otherwise been taken care of in the will, are also good candidates. But anyone qualifies, particularly if they have appreciated assets. Consult your attorney, tax advisor, accountant or Florida Tech's Office of Development. There is no obligation and Florida Tech will do tax-and-income calculations for your attorney or CPA to review at no charge to you, even if you decide not to proceed.

Q. How is the tax deduction calculated for trusts that pay the donor a lifetime income?

A. There are IRS tax tables based on the ages of those to receive an income and the rate of return you request or a fixed amount to be paid to you. Generally, the larger amount you receive annually, the less the tax deduction and vice versa.

Q. Are there any painless, low-cost no-cost ways to help Florida Tech and my financial situation?

A. You bet! Consider contributing any item you no longer need to the university and that the university can use in its educational mission. Your tax deduction is the fair market value of the item and you'll get an official tax receipt from the university. You should consider personal item gifts to nonprofit organizations in your will also. You will eliminate your heirs' hassle of selling personal or business items. In your estate plan, leave every item your heirs are unlikely to want or need to the university. This reduces your taxable estate by the fair market value of those items, leaving only liquid assets available for your heirs. By making the university a contingent beneficiary in your will, you guarantee that if other heirs are not living at the time of your death, your estate will still accomplish great things.

Q. Do my family or I get any recognition for remembering the university in our estate plans?

A. Yes, the Florida Tech Legacy Society is a group of friends who have included the university in their estate plans, and have told us about it. The purpose of the Legacy Society is to encourage others to do the same. Alumni and friends who have remembered the university in their estate plans, insurance policies, or similar planned gifts are automatically included in the Legacy Society. We need your permission to use your name, and we realize that your plans may need to change at any time. As a member of the Legacy Society, you will be listed in our annual Ad Astra publication. The Ad Astra Society is the university's premier annual gift club. Members of the Legacy Society are truly building the foundation on which future generations of students will be served, and as such, they are founders of this university. The great educator Charles Kettering said, "The greatest thing this generation can do is to leave a few stepping stones for the next generation." That is precisely what you, as a member of the Legacy Society, will do.