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| Trusts |
Estate Tools for the Trusting
Thomas M. Kostigen
02/02/2004
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With overall confidence in financial institutions in decline and even some top-shelf investment houses under investigation for mismanagement, handing over complete control of millions of dollars in liquid securities requires courage. Weighed against the risks that the investment manager will underperform—and that the IRS will set its sights on RMA valuation discounts—is the valuable tax shield these structures provide, which can substantially boost the overall performance of a portfolio. For long-term investors for whom avoidance of estate taxes outweighs the demand for current income, RMAs may fit the bill, despite their shortcomings. From Your Side of the Table:
Questions to ask before establishing an RMA:
RMAs are long-term binding contracts. After consultation with legal, estate
planning and financial planning consultants regarding whether an RMA
is right for you, consider the following questions:
1. Is enough income generated by assets outside the RMA to ensure that I will be able to finance my lifestyle, factoring in an appropriate margin for emergencies?
2. Will my heirs be able to pay estate taxes with non-RMA funds? Will I outlive my RMA, and, if so, what are the consequences?
3. Do I trust the institution managing my RMA and its investment management judgment?
4. What are the penalties for early RMA withdrawals for my heirs and me?
You or your advisors should also conduct a due diligence review of your estate and financial plans and the institution managing the RMA before you sign a contract.
Illustration by Ken Orvidas
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