“The only things certain in life are death and taxes.” —Benjamin Franklin, statesman
“The difference between death and taxes is death doesn’t get worse every time Congress meets.” —Will Rogers, humorist
That’s an old comedy bit, and actually, contrary to Will Rogers’ observation, Congress has improved estate taxes in recent years. It has reduced the estate tax dramatically through reduced rates and increased credit exemptions. On the other hand, the complexity of the income tax laws is another matter that we will not pursue here.
Christian stewardship and end-of-life planning
What does reduced estate tax have to do with Christian stewardship and end-of-life planning? There is anecdotal evidence that some people have decided that because the estate tax is no longer a severe problem for them, there is less reason now to make a will. However, Catholics believe end-of-life planning is an important aspect of stewardship. If we understand that all we are and all we possess are God’s gifts to us, our stewardship of those gifts is just as important at the end of our time on earth as it is during the course of our life.
In one of St. Paul’s more obvious observations, he said, “For we brought nothing into the world, just as we shall not be able to take anything out of it” (1 Timothy 6:7). Because this is true, states have laws of descent and distribution to determine which heirs are entitled to our property if we have not bothered to take the time and effort to make a will. In fact, when the Michigan legislature adopted the Estates and Protected Individuals Code in 2000, it included the state of Michigan in the definition of “heir.” Think about that concept for a moment if you are procrastinating in making a will.
Estate social capital
In the past, one of the incentives for estate planning — making a will and executing trust and power of attorney agreements — was to avoid estate tax and probate court procedures. Estate planners and other commentators sometimes referred to the estate tax as an “elective tax,” because with proper planning, much, if not all, of the tax could be avoided. If you did not plan, you effectively “elected’ to have your estate pay the tax.
In this context of the estate tax, some writers and commentators referred to an estate’s “social capital.” Because the estate tax law provided a deduction for bequests and similar gifts to charities, by including such gifts to the Church or charities in your estate plan, you could reduce or even eliminate the estate tax. Absent such planning, you were considered to have “elected” to spend your social capital in government programs rather than on those religious and charitable organizations you supported during your lifetime.
Does this mean that now that the estate tax may not apply to your estate, there is no reason to leave a legacy gift to the Church though a bequest to your parish, the Archdiocese Endowment Foundation, Sacred Heart Major Seminary, Catholic Charities of Southeast Michigan or another Church institution? Not at all. One of the principles of Christian stewardship is giving back to God the first fruits of our labor. In our estate plan, this is the stewardship of assets — the lifetime accumulation of the fruits of our labor. By returning a portion to God through bequests and similar gifts in our estate plan, we leave a legacy that will continue to support Church ministries and programs for many generations.
Consider a gift of life insurance
In the years before the reduction of the estate tax burden, financial planners advised acquiring life insurance as a common technique to provide funds to pay a person’s estate tax liability. In many cases now the need to protect the estate from the estate tax cost through life insurance is not so great. Transferring a life insurance policy that your estate may not need to the Church or your favorite charity is another way to make a legacy gift. Moreover, transferring a life insurance policy during your lifetime may also provide you with income tax savings as well.
For more information on matters discussed in this article, contact Tom Scholler, associate director of development and stewardship, at (313) 596-7408 or [email protected]. Or visit www.aod.org/being-catholic/ways-to-give. This article is for your information on stewardship, estate planning and planned charitable giving. It is not intended to be legal or tax advice. You should consult with your attorney, financial planner or tax advisor for the precise planning of the transactions suggested here.
