By Joshua Frankel, Second Vice President-Wealth Management, Smith Barney

Do you think of yourself as "wealthy"? What does the IRS think? When you've accounted for your home, investments, personal property, retirement accounts, and all insurance that you own, chances are you have assets over $2 million - and that means you're "wealthy," according to the IRS.

For U.S. citizens, in 2006 (and 2007), every dollar (worldwide) over $2 million may be subject to federal estate taxes of up to 46%. If a majority of your assets are in retirement accounts, including qualified plans and IRAs, your estate could lose over two-thirds of its value to federal estate and income taxes, leaving your beneficiaries with a much smaller portion of what you worked so hard to accumulate.

You may want to consider these guidelines as you plan your estate:

1. Prepare a Will. Be sure it keeps pace with changes in your own personal circumstances and adjustments in tax laws. Marriage, divorce, birth, a move to another state or a change in your finances should signal an immediate review and possible updating of your will.

2. Use Your Estate Tax Exclusion. The IRS allows U.S. citizens to pass the first $2 million of assets in 2006-2008 (increasing to $3.5 million in 2009) to their beneficiaries, free of federal estate tax. Be sure to plan properly so that both spouses use their estate tax exclusions.

3. Title Assets to Avoid Probate. Holding property in joint tenancy with right of survivorship is a simple way to avoid probate. Joint tenancy with the right of survivorship is a form of property ownership by two or more persons. When one of the joint tenant owners dies, his/her interest in the property automatically passes to the surviving owner(s).

4. Monitor Retirement Plan Assets. If you plan to gift your IRA or qualified plan to heirs at death, the account could lose up to two-thirds of its value to federal estate and income taxes. Taking distributions from your IRA or qualified plan and purchasing a life insurance policy held in an irrevocable life insurance trust (ILIT) could be a consideration. That way your heirs receive the insurance death benefit free of estate and income taxes (if the ILIT and plan are properly designed), instead of a fraction of your IRA or qualified plan.

5. Gift Away What You Don't Need. Lifetime gifts to family members or others can reduce your potential estate tax liability by removing the gifted assets and any future income and appreciation on those assets from your estate. You are entitled to transfer up to $12,000 per person each year without incurring any gift tax or reducing your lifetime gift tax exclusion amount. (Spouses together may gift up to $24,000.)

6. Keep Enough Assets Liquid to Satisfy Estate Taxes. Generally, the IRS requires that any federal estate tax liability be satisfied within nine months of the date of death, and that payment must be in cash. There are four typical sources from which funds can be obtained: cash reserves, loans, and liquidation of assets or life insurance proceeds.

7. Hold Life Insurance in Trust. If properly owned by a trust or third party, life insurance proceeds may be income tax free to the recipient and not subject to estate tax. However, the proceeds will be subject to estate tax if you (as the insured) own or have rights in the policy. Purchasing the policy within an irrevocable trust may prevent life insurance proceeds from increasing your estate tax liability.

8. Know What You Have and Where You Have It. Keep copies of your important papers and make sure that appropriate parties know where these papers are kept.

9. Choose Executors and Trustees Wisely. Selecting one family member among several may create unforeseen problems down the road. Fiduciary duties may call for the expertise, impartiality and independence of a corporate trustee, at least as co-trustee.

10. Meet with Your Financial Advisor. Finally, discuss your estate planning objectives, concerns and fears with your financial advisor, as well as your tax and legal advisors, so that you can develop a plan for effectively transferring wealth to your heirs.

Citigroup, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

Smith Barney is a division and service mark of Citigroup Global Markets Inc. Member SIPC.

AARON APPRAISAL has extensive experience in real estate appraisals for estate / trust purposes