ADAMS.txt


               FINANCIAL CORNER:
               QUESTIONS AND ANSWERS
               GEORGE R. ADAMS, ESQ., 32, KfCfCfHf
               Chevy Chase Trust Group
               7700 Old Georgetown Road, Bethesda, Maryland 20814

QUESTION: Dear Brother Adams: Our estate is over
$1.2 million.  Our financial advisor says that I have a
choice.  We can write a check to the IRS or to our
favorite charity; there is no way around it. He also says
that if we want the tax dollars to go to a charity, we
should use a charitable trust.  Is it true that there is no
way to avoid estate taxes?

            ANSWER: As discussed in the
January, 1991, issue, it is the
federal estate tax impact on the
estate of the surviving spouse that
is normally the problem in reduc-
ing taxes since the estate of the
first spouse to die is entitled to a
credit shelter equivalent of
$600,000 and can take advantage
of an unlimited marital deduction
avoiding the federal estate tax
altogether. The second spouse to
die,  of  course, does  not  get the 
assets included in his or her estate
in excess of $600,000 beginning at
a marginal tax rate of 37 percent. 
That article discusses the use of a
credit shelter trust which won't be
repeated here.
   Your advisor is correct in that a
charitable remainder trust or
pooled income fund is an excellent
means to reduce your tax liability. 
These charitable trust vehicles
allow you to pay an annuity (char-
itable remainder trust) or income
(pooled income fund) to an indi-
vidual and obtain a charitable
deduction for the remainder value.
   These  financial  vehicles
   can be established during your
lifetime or under your will.  The
arrangements must conform pre-
cisely to the requirements of the
IRS and should only be done un-
der the guidance of an attorney or
qualified advisor. Most charities,
including our Scottish Rite Foun-
dation, have individuals who will
help you with such arrangements. 
       An earlier Journal issue contains
a discussion of these vehicles. See
"How To Make Charitable Gifts"
(April, 1991) and note our special
number (800-123-4567) which
you can call to contact a qualified
adviser.
       You should also be aware of
other strategies to reduce federal
estate taxes which would include
taking maximum advantage of
your annual $10,000 gift tax ex-
clusion per donee per year. In
addition to your exclusion, you
can borrow your wife's $10,000
gift exclusion by filing an appro-
priate gift tax return. Thus, a mar-
ried couple with three married
children could remove up to
$120,000 per year from their es-
tates for tax purposes.  
       Obviously, both tax and nontax
factors should be considered in
each instance, and I would recom-
mend that before embarking on a
significant gift program, you make
absolutely sure that you and your
wife will not require these assets
for your future support.
       Another strategy to consider is
the use of life insurance to either
reduce taxes or provide funds to
pay taxes. For example, a popular
use of insurance is "second-to-die"
insurance which pays on the death
of the surviving spouse at the time
when the insurance would be
needed for taxes.  
   Since the premiums are based
upon the life expectancy of both
spouses, they are significantly
lower than ordinary life insurance
premiums. Before purchasing this
insurance, however, you should
make sure that the survivor of you
is comfortable with continuing the
premium payments after the death
of the first spouse since they will
reduce the income available to the
surviving spouse.
   Another device used to save or
reduce death taxes is the irrevoca-
ble life insurance trust. This trust
is very technical and should only
be established under the guidance
of your attorney. Whether such a
trust will make sense for you de-
pends upon many factors includ-
ing your age, health and the
amount of disposable income you
have available for the payment of
premiums.


[Author's Note: The contents of this
article are of necessity of a general
nature, and their authenticity and
application may vary from jurisdic-
tion to jurisdiction. The advice given
is contingent upon individual factors
and should not be acted upon with-
out first consulting with your attor-
ney or other adviser.]
