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When to flout conventional financial wisdom

Start reducing your estate now
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Start reducing your estate now

Conventional financial wisdom: A well-to-do couple in their late 50s should start giving money every year to their children and grandchildren in the amount of the annual gift tax exemption, currently $13,000, to minimize estate taxes.

Instead: Hang on to your money -- you might need it, says CFP Bruce Barton of Parkworth Wealth Management in San Jose, Calif. "Depending on the number of children and grandchildren you have, it can indeed reduce your estate very quickly but, depending on future market upheavals, might put at risk your retirement nest egg," Barton says. "I have seen some really bad situations with clients coming to me too late in life for me to be able to do anything without drastic advice such as "sell the house, downsize and move out of state."

Besides, reducing your estate isn't an issue unless your net worth exceeds $5 million, since that's the amount currently exempt from taxes. Estate taxes could be a concern after 2012, when the exemption reverts to $1 million with a 55 percent tax on the excess. Of course, the rules may change before then.


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