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Estate Planning

Charitable Planning

Estate Planning

Broadly defined, estate planning is the process of developing and implementing a comprehensive plan for the effective and orderly disposition, during lifetime and at death, of one's entire estate. It is a process that begins during life and can continue long after death.

SPM is dedicated to providing you with quality estate planning resources, so you can become familiar with all of the existing options.   We want to arm you with the information you need to make an informed decision about your family's future.

If you have a well-drafted estate plan in place, you'll ensure that your estate passes to whom you want, when you want, and is carried out in the manner you've chosen. You can rest assured that your family won't have to endure the public process, time and costly matter of probate.  But you need to be aware of the many options that exist in estate planning - and you must choose your attorney wisely. That is why SPM works with experienced attorneys who understand how to integrate your estate planning requirements into your overall wealth management plan.

Estate Planning is an organized plan for the: 

  • Creation
  • Protection
  • Preservation
  • Management and Distribution of an Estate

A properly designed Estate Plan can accomplish the following:

  • Avoid the lengthy time and high cost of probate.
  • Provide instructions for health care and life support decisions.
  • Keep personal and business affairs private and confidential. 
  • Ensure control of all property, including pensions and life insurance. 
  • Leave explicit instructions for the care of loved ones. 
  • Create protective trusts for young children, disadvantaged children, adult children, and grandchildren. 
  • Reduce or eliminate estate and gift taxes. 
  • Control when and how your heirs will receive their share of the assets
  • Allow continuation or sale of your assets and business

Estate planning is by definition a ‘planning’ process. The first step in that process is to identify the assets contained in the estate. The second step is to determine the value of those assets, and the third step is to identify the heirs or other persons who will receive the estate, as well as the goals of the estate owner in making gifts or bequests.

Estate planning is a complex process which covers many areas including wills, trusts, insurance, investments, accounting, and business continuation. Estate, gift, and income taxes are critical issues which must be thoroughly understood. It is one of the most important areas of financial planning, and it is not unique to any economic class. Proper estate planning can influence the futures of spouses, children, grandchildren, favorite family members, and close friends. It can ensure their security and their prosperity.

Estate planning is about asset protection. After working and saving for most of your life, you will want to be sure that your accumulated estate will serve you and your family well throughout your retirement years. You will also want to pass on as much as possible to family members.

Estate planning takes time; it calls for a little time now or a lot of time later. Estate planning requires time to identify and accomplish goals that are personally important.

Estate planning is a commitment to others. An estate plan does not refer only to the estate. It is the family's future. In order to properly protect it, you need a qualified professional who respects your needs and understands your wishes. With the help of competent and professional advisors, you can comfortably establish a flexible estate plan. The plan can be changed at any time, depending on changing circumstances. You control every aspect of how your property will be used.

If there are substantial assets, making a long-term estate plan is not an option, it is a necessity. A well developed plan is one of the best gifts to leave loved ones because it contains some of the most important decisions made about their future and well being. The process of estate planning requires an understanding of how assets will pass at death, as well as how assets will be taxed at death. The earlier an estate plan is begun, the more choices you will have.

The greatest benefit of estate planning is the ability to name heirs, specify their shares of the estate, and dictate the manner and timing at which they receive their shares. However, the process is often complex. Estate planning will frequently raise issues involving such matters as the law of wills and trusts; valuation of assets; appropriate investments; accounting; business management; and estate, gift, and income taxes. Often it requires the assistance of lawyers, accountants, professional administrators, and others. 

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Charitable Planning

Believe it or not - You are a Philanthropist. We all give away our wealth. The question is whether you will let the government direct your philanthropy through the tax process or whether you will direct the giving through charitable planning. SPM Wealth Advisors are experts in creating Charitable Giving strategies that meet your needs and reflect your values.
With Charitable Planning, you can:

  1. Reduce income taxes,
  2. Reduce capital gains taxes
  3. Reduce estate taxes
  4. Increase transfers to heirs
  5. Increase transfers to charity

Can you think of a better way to improve your after-tax returns?

Select Portfolio Management, Inc. can help answer questions you might have, such as:

  1. How much is enough for our children and other heirs?
  2. How can we avoid leaving too much wealth to your kids?
  3. How can you “do your giving while you’re living so you know where it’s going”?
  4. How can you give assets away but still maintain equitable control?
  5. How can you leave the most meaningful legacy?
  6. How can you motivate your children with incentive trusts?
  7. How can you transition from a life of financial success to a life of significance?
  8. How can you unite your planning team around your heartfelt purpose?

Charitable Gifting

How do you decide whether to donate to charity?

The decision to donate to charity is a personal one. Although the IRS does not require that you have any charitable motivation when you donate to charity--you can do it strictly for the tax benefits--most people who decide to donate to charity have a charitable intent.

There are an infinite number of charities from which to choose. Most people have a particular charity in mind when they decide to make a contribution.

What constitutes a gift to charity?

A gift to charity is simply a gratuitous transfer of property to a charitable organization. The key is that your gift must be some kind of property--your time or personal services do not count. There are several different types of property that can be donated to charity, and a gift is limited only by your imagination. Are you the type who wants to donate cash, stock, or your lunch box collection from a 1960s sitcom?

What are the tax benefits of donating to charity?

Through tax legislation, Congress has attempted to encourage charitable giving because it is good social policy. Most every charity depends on individual contributions to remain financially solvent, especially in this era of fewer direct government dollars. As a result, charitable giving has become interconnected with the tax laws, which have grown more and more complex.

Congress has sweetened the pot for taxpayers who donate to qualified charities. First, you generally receive an income tax deduction in the year you make the gift. Second, you do not have to worry about gift tax because federal gift tax does not apply to charitable gifts. Third, charitable gifts serve to reduce your taxable estate, thus reducing your potential estate tax liability. For more information, see Charitable Deduction. It is this last area--estate tax--where charitable giving may produce the greatest tax benefits. Over the next 30 years, an estimated $8 trillion of assets will pass from one generation to the next, resulting in the assessment of significant estate taxes. One solution to minimize these estate taxes is charitable giving.

What options do you have for donating to charity?

An outright gift

In the typical situation, your gift will be for the charity's benefit only, and the charity will take possession of the gift immediately. This type of gift is called an outright gift. This arrangement satisfies the general rule that a gift to charity must be paid to the charity in the form of money or property before the end of the tax year to be deductible for income tax purposes.

Split interest gift in trust

Another option is for your gift to be split between a charity and a noncharitable beneficiary. Here, one party (usually the noncharitable beneficiary) receives the use of the donated property for a specific period of time, which means he or she is paid a certain sum every year out of the donated property. Then, after this time period is up, the remaining property passes to the charity. Such gifts can be used to provide for a dependent child or a surviving spouse. In this arrangement, the charity's right to enjoyment and possession of the gift is delayed because the noncharitable beneficiary has the first interest in the donated property. Ordinarily, this delay would mean no tax deductibility for your gift. However, Congress has voiced its approval of such arrangements as long as the gift is set up as one of a number of special trusts expressly created for this purpose. If your split interest gift is set up as one of these trusts, you receive federal income, gift, and estate tax deductions.

CRAT (Charitable Remainder Annuity Trust)

A CRAT is a split interest gift between a noncharitable beneficiary and a charitable beneficiary. The noncharitable beneficiary has the first interest, and the charity has the remainder interest or second-in-line interest. The trust pays out a fixed amount of income every year (an annuity) to the noncharitable beneficiary for the term of the trust, and the remaining assets pass to the charity at the end of the term.

CRUT (charitable remainder unitrust)

A CRUT is a split interest gift between a noncharitable beneficiary and a charitable beneficiary. As with a CRAT, the noncharitable beneficiary has the first interest, and the charity has the remainder interest. However, instead of paying out a fixed amount each year, a CRUT pays the noncharitable beneficiary a fluctuating amount each year, depending on the value of the trust assets for that year. This amount is calculated as a percentage of the assets in the trust on a specified date each year. At the end of the trust term, the remaining assets pass to the charity.

Tip:            There are several varieties of CRUTs (NI-CRUT, NIMCRUT, or Flip CRUT), each with slightly different rules regarding how the noncharitable beneficiary is paid.

Charitable Lead Trust

A charitable lead trust is a split interest gift between a noncharitable beneficiary and a charitable beneficiary. Here, the charity has the first or lead interest and the noncharitable beneficiary has the remainder interest. The charity is paid a certain amount every year for the term of the trust, and then the remaining assets pass to the noncharitable beneficiary at the end of the trust term.

Pooled Income Fund

A pooled income fund is a split interest gift between a noncharitable beneficiary and a charitable beneficiary. Like the CRAT and CRUT, the noncharitable beneficiary has the first interest and the charity has the remainder interest. A pooled income fund is managed by the charity (much like a mutual fund) and is made up of donations from several donors. The charity pays the noncharitable beneficiary a fluctuating amount each year, depending on the value of the fund in that year. These income distributions are made to the noncharitable beneficiary for his or her lifetime, after which the portion of the fund assets attributable to the noncharitable beneficiary is severed from the fund and used by the charity for its charitable purposes.

Bargain sale

A bargain sale in the context of charitable giving is a sale to charity at a bargain price (i.e., a price below the fair market value of the item sold, fair market value being the price a willing buyer would pay a willing seller in an arm's length transaction). The difference between the sale price and the actual fair market value of the asset equals your donation to charity. A bargain sale involves two separate transactions for tax purposes: a sale and a charitable gift. The IRS treats each event as a separate transaction. Consequently, each is reported separately on your income tax return.

Private foundation

Donors with sufficient resources may want to create a private foundation. A private foundation is a separate legal entity (often named for the donor) than can endure for many generations after the original donor's death. The donor creates the foundation, then transfers assets (typically appreciated assets) to the foundation, which in turn makes grants to public charities. The donor and his or her descendants retain complete control over which charities receive grants.

Community foundation

A type of organization related to a private foundation is called a community foundation. A community foundation concentrates its activities within a defined geographic area and is typically controlled by a representative group of community members, which may include the donor. In practice, a community foundation is a public charity, though it appears to share some of the characteristics of a private foundation.

Donor-advised fund

Similar in some respects to a private foundation, a donor-advised fund (DAF) offers an easier way for a donor to make significant charitable gifts over a long period of time. A DAF actually refers to an account that is held within a charitable organization. The charitable organization is a separate legal entity, but the donor's account is not--it is merely a component of the charitable organization that holds the account. Once the donor has transferred assets to the account, the charitable organization becomes the legal owner of the assets and has ultimate control over them. The donor can only advise--not direct--the charitable organization on how the donor's contributions will be distributed to other charities.

To find more useful articles regarding Charitable Giving, please visit our website's "Resource Library" section.

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The information presented is intended for informational use only and is not a substitute for investment, legal, tax, or insurance advice. State, national and international laws vary, as do individual circumstances; so always consult a qualified investment advisor, attorney, CPA, or insurance agent on all investment, legal, tax, or insurance matters. The effectiveness of any of the strategies described will depend on your individual situation and on a number of other factors (e.g. time horizon, risk tolerance, etc.)