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Celebrate Your Life With A FIT
Celebrate your life's needs with a thoughtful approach to financial planning.
by Lewis J. Walker, CFR, CIMC, CRC
April 1, 2006
T hrough diligence and wise investing, you have done well You have met your goal for financial independence or are on target to do so. An inheritance may have added to your net worth, or may do so in the future. Enter Abraham Maslow.
In his 1943 seminal work,
Motivation and Personality, American psychologist Abraham Maslow published his famous
Hierarchy of Needs. Often pictured as a pyramid, at the base was Psychological Needs (food, water,
shelter, warmth). As basic needs were met, humans concerned themselves with satisfying needs higher
in the hierarchy: Security Needs (protection from danger); Social Needs (love, friendship,
comradeship); Ego Needs (self–respect, personal worth, autonomy). At the top of the pyramid was
Self–Actualization Needs (full potential).
Consider the celebration of your own life in Maslow's terms and you can see the Hierarchy of Needs at work, especially in your relationship to money.
As you started your career, financial planning was basic - pay rent, buy food and gas. Security (safety) needs kicked in when you decided to “save money for a rainy day,” buy insurance or write a will. As your comfort level increased, you found the time, energy and financial resources to concentrate on social needs, with more satisfaction derived from love and friendship. Peer group comparisons spur ego needs, the growth of self–respect, personal worth and autonomy, including financial independence. Along the way transitions occur, changes in motivations key to your purpose in life.
"Love" is the point. Perhaps marriage, the rearing of children, and dealing with parents and relatives growing older brought home the realization that “it is not always all about me.” Women caught in the “sandwich generation” squeeze have to reconcile conflicting pressures. As more and more boomers pass the milestone age of 50, reflections on the meaning of life, self–actualization and full potential needs become more intense.
Rick Warren's book, The Purpose Driven Life, has sold over 25 million copies and is the best selling hardback in American history. Self–actualization and the search for meaning is the dominant cycle as the boomer wave matures.
Concepts of stewardship (“not me and mine; it is about thee and thine") are receiving heightened religious and social emphasis. Women, with their gifts as nurturers and peacemakers, are in the vanguard of the self–actualization phase of American societal evolution. As Stephen R. Covey, author of The 8th Habit: From Effectiveness to Greatness, has observed,“The new currency is meaning, not money."
Covey notes that secondary greatness is based on transitory standards — position, net worth, address, toys – in other words, the classic “things” that you “cannot take with you.” As we mature and wrestle with life, we realize that primary greatness is what counts; character and contribution, moral authority, leadership. At the end of the game, it will be about legacy, values and what we instill in future generations.
Give Your Family A FIT
From 2006 to 2008, the federal estate tax exemption is $2
million. In 2009, it will be $3.5 million, and in 2010, the estate tax is repealed. With basic
structuring of an estate, a couple can pass twice the exemption to surviving children or other
heirs, estate tax free. In 2011, unless Congress acts, the exemption reverts to $1 million. It is
expected, however, that Congress will pass a permanent exemption in the range of $3.5 million to $4
million. That means that you could pass up to $7 million to $8 million estate tax free to your
heirs, and even more with advanced estate planning strategies. For many, that is a lot of
money!
As you consider wealth–transfer and legacy issues, you may wonder how to preserve your values and instill them in the next generation. How do you pass wealth downline as a “helping hand” that preserves incentives and character–building disciplines, as opposed to a destructive handout? Even the moderately well–to-do have concerns about money not destroying their kids. Values–based financial planning is resonating with many people.
Roswell–based attorney John J. (Jeff) Scroggin, has created a solution known as the Family Incentive Trust” (“a FIT for the Family”). The FIT is an irrevocable, generation–skipping dynasty trust that provides benefits for future generations. A FIT can establish a safety net for family members; offer incentives to encourage positive behavior; or create a family bank, a source of loans and investment capital. The key point, says Scroggin, “Unless truly destitute, no family member can live off the trust income.”
As a safety net, a FIT can provide funds for medical care for family members who cannot afford care, including long–term care. For those with the inability to fund post–secondary education, loans or grants could spur educational advancement. Other criteria could be added, such as funds to allow a parent of a minor child to stay home, or to supplement the income of a disabled breadwinner.
Incentive awards can be granted to those who meet educational goals (degrees, good grades), or take time out for charity or missionary work. A “family Nobel Prize” could be granted every five years to the person designated by a third party as having made the most significant contribution in the field of philanthropy, education, law, science, humanities, medicine, or environmental preservation.
As an investment bank, the FIT could provide seed–capital for entrepreneurial ventures, as a loan or grant; invest in a family business; or help with the purchase of a first home.
Since a FIT is a generation–skipping trust, IRS rules allow each taxpayer to contribute no more than $2 million to a FIT. A married couple could contribute $4 million. However, life insurance could leverage substantially the assets in the trust.
A reasonably healthy non–smoking couple, both 60 years of age, could for example purchase a Last Survivor Universal Life insurance policy with the trust as owner and beneficiary. For each $1 million in death benefit the annual premium would be approximately $10,302.
A FIT is but one element of an overall estate plan. Notes Scroggin, “A single person or a married couple may specify that assets equal to their unified credit exemption go to children, with an insurance trust created as a FIT. The kids get a direct inheritance while leaving a legacy in an incentive trust.” These issues may be of interest to you as a successful person, and perhaps apply to your parents as they consider wealth transfer issues.
With half of the 78 million baby boomers now age 50 or older, 39 million people are going through a “second half ” life transition of monumental proportions. Past the age of 50, one begins to look at life differently. To reiterate Covey's dictum, the new currency becomes meaning, not money. The celebration of life is more profound, grounded in spiritual and familial significance. It is a new journey. Grow with it!
