The Annual Report on the United States Government reports that Americans paid $25 Billion in estate planning tax. Every dime of those taxes could have been avoided. How do you think the kids felt when they wrote out a check for $300,000 for estate planning tax and then learned from the estate planning attorney that mom and dad could have saved them every penny?
If you don't like wasting money on taxes and don't want your kids squandering money either, then this article will explain what you need to do.
You must realistically answer these questions:
1. Will your estate be worth more than $2 million (2008 estate planning tax exempt amount, subject to change) when you die? By the way, you cannot assume that the estate exemption will grow as some people believe. Congress can change this number at any time and there are powerful people in Congress who want to reduce the exemption. All you do know is that right now, you can shelter $2 million of assets, while it lasts.
2. Do you have any assets that could be double-taxed at your death (double taxed by income tax and estate planning tax, which could consume 70% of the value) such as IRAs and annuities?
3. Do you think that if you need to take action, that your attorney would call you up on the phone and tell you? (He probably won't as many attorneys wait until you call them).
4. Do you think you have plenty of time to take care of any estate planning tax problem--like the people who paid $25 billion last year?
5. Do you incorrectly think that to eliminate or reduce estate planning tax means giving up control of assets or making gifts or giving to charity? (With good estate planning, you can keep total control of assets and still remove them from your taxable estate).
6. Do you have the false notion that a living trust will eliminate your estate planning tax? (You will pay estate tax on assets over $2 million living trust or not).
7. Do you think that you need to die in order to get your $2 million estate exemption? (You don't, $1 million is available right now and many wealthy people use their estate exemptions when they can make the most of them-- during their lifetimes).
If you answered "yes" to any of the above, you probably have an estate tax problem.
There are several ways to reduce or eliminate estate planning tax, including:
- gifting of assets to heirs now rather than leaving at death
- the use of estate planning strategies and tools (e.g. GRATS, QPRTS) to divide assets into their lifetime value and their discounted remainder value and this reduce the estate planning tax
- discounting the value of assets with minority or fractional discounts (and thus reduce the exposure to estate tax)
- proper estate division between spouses
Other posts in this blog will address these estate planning strategies individually.
Note: this article uses the term "estate planning tax" to help the 6000 people who search Google each month for this term when they really mean "estate tax."