Planning your estate, and executing the appropriate documents
such as a will or trust, are only the first two steps in a three step
process.  The final, and perhaps more important, step is
implementation.  Many assets, such as joint property, pension
accounts, insurance and annuities, are not affected by your estate
plan.  These assets pass "outside" of the estate to the joint owner or designated beneficiary.  As a result, even the most artfully drafted estate plans will be ineffective unless the assets are
owned/designated in the correct manner.

Joint Property
Most jointly owned property passes automatically to the survivor
regardless of the deceased owner's estate plan.  The benefit of joint
ownership is the avoidance of probate and the ease of an
"automatic" transfer at death.  The danger is that your intent may
not be carried out if the joint ownership and your estate plan
conflict.  This can happen in two ways.  First, if you have
established a joint account (banking/brokerage) with your spouse,
or for the benefit of children or others, the account may pass to the
survivors named on the account.  Generally, if the account is not
mentioned in your estate plan, the joint owner will become the sole
owner at your death.  If, however, you specifically refer to the
account in your will/trust and bequeath it to someone other than the
joint owner, an ambiguity would arise which could put the ultimate
ownership of the assets in question.

The second major pitfall in the joint ownership of property is estate
taxes.  For married individuals with significant assets, the estate
plan is often designed to take full advantage of federal estate tax
laws.  These laws allow the tax-free transfer of: (1) unlimited
amounts of property to a surviving spouse; and (2) $600,000 to
children (or other persons) [NOTE: Since the publication of this
newsletter, the allowable credit equivalent has been raised to
$650,000 for 1999, and is scheduled to increase to $1,000,000 by
2006 - this article has been revised to reflect these changes].  Since
each spouse has the ability to transfer $650,000 free of estate tax, a
properly designed estate plan can eventually shelter up to $1.3
million of assets.  To maximize the tax savings, each spouse must
have individual assets of $650,000 which can pass to children or
others.  If the majority of property is held jointly, that property will
pass to the surviving spouse, not children, and the opportunity to
use some or all of the deceased spouse's $650,000 "deduction" will
be lost.  Therefore, if tax planning is part of the overall estate plan,
the joint ownership of property should be carefully reviewed to
ensure that it does not result in unnecessary tax.

Qualified Pension Plans & IRA's
With one exception, qualified pension plans, such as defined
benefit, profit sharing, and 401(k) plans, will pass to the
beneficiary you designate.  The beneficiary designation is made
when and where the plan is established, and can be changed from
time to time.  Your estate plan does not affect this designation.

The exception to the above rule is a requirement that all qualified
pension plans (but not IRA’s) must provide a minimum benefit for
a surviving spouse.  Although the rules are complex, generally the
surviving spouse must receive at least 50% of the benefit that the
deceased spouse would have received.  This rule applies regardless
of the current beneficiary designation.  A spouse can, however,
relinquish this survivorship right by executing a waiver in
compliance with a number of technical rules set forth in the
pension tax laws and regulations.  If a valid waiver is executed, the
pension participant is then free to designate any beneficiary he or
she wishes.   The validity of this waiver should be checked each
time the designation for the plan is changed.

Even if you are able to successfully incorporate the pension plan
designation and spousal waiver (if any) into your estate plan,
income tax considerations may indicate another approach.  A
surviving spouse has the ability to treat pension assets as his or her
own, and can therefore continue the income tax-deferred status of
the plan.  Non-spouse beneficiaries do not have this ability, and
income tax on the entire pension can be triggered by designating a
non-spouse.  Depending on the age of the surviving spouse and
size of the pension, the income tax consequences can be
significant.

Obviously, the planning for a qualified pension plan is complex.  If
pension assets comprise a large part of your estate, and your spouse
is the sole beneficiary, some or all of your $650,000 "deduction"
may be wasted.  If your spouse is not named as the beneficiary, a
valid waiver must be in place.  Finally, any decision to designate a
non-spouse as the beneficiary should be made only after the
income tax implications have been determined.

Individual retirement accounts (IRA's) are governed by many of the
same or similar rules as qualified pension plans.  The beneficiary
you designate controls the distribution, and if that beneficiary is not
your spouse, a premature income tax may result.  IRA's are not,
however, subject to the spousal waiver rules governing qualified
plans.

Gifts: Accelerating Your Estate Plan
Under current tax laws, you may gift up to $10,000, now indexed,
annually to each donee without incurring estate tax.  Over time, a
systematic gift program can substantially reduce your estate tax
burden, and thereby increase the assets passing to children.

Life Insurance
A life insurance policy is a contract between the owner of the
policy and the insurance company.  Like qualified plans, the
beneficiary designation controls the disposition of the contract
proceeds.

Life insurance is one of the last remaining income tax shelters and,
if used properly, can pass assets to beneficiaries completely free of
all tax.  The key is ownership.  If the insured is the owner of the
insurance policy, the proceeds are not subject to income tax at
death, but will be included in the insured's estate for estate tax
purposes.  If, however, the insured relinquishes ownership (i.e.
control) of the policy, the proceeds will be paid free of both income
and estate taxes.  Implementation of your estate plan would include
a review of existing insurance policies, their ownership, and the
role they play in your overall plan.

Conclusion
Shareholders Allen Webster and Richard Kozlowski devote much
of their time to estate planning and probate matters.  Allen, who is
also a certified public accountant, has an advanced law degree in
federal taxation.  Rick brings a wealth of experience gained from
his employment with a Boston tax and financial consulting firm
and years of estate planning expertise.  Feel free to call Al or Rick
to discuss your estate planning, tax or probate questions.