Fringe Benefit Plans

Fringe Benefit Plans have become more and more important in most people’s estate planning. The primary reason for their increasing significance is that they provide is additional tax savings opportunities for employees. So, as taxes increase, the value of fringe benefit plans also goes up.


They also have increased in popularity because essentially the government subsidizes them. The costs of the plans are deductible by an employer; but the benefits are often not taxed (or taxed later and at a lower rate) to the recipient (employee). So, this tax savings is the real benefit to the plans and that savings is “paid for” by the government in lost tax revenues.


Don’t be fooled into thinking you’re paying less taxes now than previous generations did. That’s just not true for the most part. Yes, it is true that federal income tax rates have declined in recent years. But, as discussed at Estate Planning and Taxes, we pay many more taxes then just income taxes. Income taxes get all the publicity; but the others, together, actually add up to more in most cases. And, those other, less publicized, taxes have been going up and up and up.


All that to simply reinforce the notion that if you can find ways to reduce your taxes you should. And your employee fringe benefit plans probably offer you some of the best ways to do it.


What do we mean by "fringe benefits?"


The term is a general term that refers to a broad array of benefits that employers offer their employees that are in addition to their salaries. Here are some examples:


Tax save
  • Life Insurance
  • Medical Insurance
  • Disability Insurance
  • Dental or Vision Insurance
  • Long-Term Care Insurance
  • Pension Plan
  • 401k Plan
  • Stock Options
  • Profit Sharing Plan


Each of these fringe benefits is paid for completely or at least subsidized by your employer. He (or she) gets to deduct the expense from his income and thus decrease the company’s taxes. Yet, generally, you will either not be taxed at all on the employers contribution or (as in the case of a 401k) your tax will be deferred.


The other nice thing about fringe benefit plans is that you participate without thinking much about them. They are easy to sign up for and contribute to each pay period. So, in the case of 401k or other investment plans, your savings grow and grow without you even having to think about the contribution that is automatically made. For this reason, these plans often grow to become the biggest chunk of an employee’s investment portfolio.


And, recently, Congress has passed laws allowing small businesses (even sole proprietorships) to have similar tax-preferred fringe benefit programs.


So, the bottom line is -- don’t overlook fringe benefits in building your estate plan. You’ll like find some of your most effective estate builders there.


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--by Beth Heikkinen
Marquette, Michigan
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