Through the years, our office has listened to an endless stream of taxpayers complain about the income tax.
But if you ever want to see anger, frustration and bitterness, meet with the beneficiaries (usually the kids) of an estate when they are told to write a seven- or eight-figure check to the IRS — for estate taxes.
Taxes that could have been avoided with proper planning.
Tragic!
A recent post-death estate planning consultation got us thinking about what you are now reading. Yes, the estate tax was exactly $3,167,000 after Mom died; Dad had died six years earlier. The really sad part of this story is that Dad’s and Mom’s entire estate tax liability could have been legally avoided with a rather simple estate plan.
Mom and Dad were survived by three kids and eight grandchildren. The business that Dad started back in the mid-50s was worth $4.5 million and owned 100 percent by Mom when she died.
According to Dad’s estate tax return, the business, which he left to Mom, was worth $2.9 million when he died. No estate tax (because of the marital deduction) was paid when Dad died.
Dad and Mom had a typical estate plan: a will and a trust. The trust created two trusts: one trust to take advantage of passing $1 million tax-free (the amount that was tax-free when Dad died) and a second trust to capture the marital deduction.
The tax-free amount is $2 million in 2006, rising to $3.5 million in 2009 and back to $1 million in 2011.
There is no estate tax if you die in 2010. I’m betting Congress will change these amounts before 2010 (or sooner).
The real answer (to why many people procrastinate and don’t complete a comprehensive estate plan during their life) is the deceased person whose estate caused the tax did not have to personally write that big check to the IRS.
Whenever we are about to plan an estate, we estimate the amount of estate tax that ultimately will be due.
Then we ask the client to write a check to the IRS for that amount. The client always gets the point. Then, we plan the estate so the client’s wealth goes to their family, instead of the IRS.
The plan must be a lifetime plan, that implements the proper strategies, as necessary, during your life. A plan contained in the typical will and trust-like Mom’s and Dad’s above-only enriches the IRS.
The person (your executor) who must write the check to pay your estate tax is helpless when it comes to minimizing or eliminating the estate tax. Only you, while you are alive, can eliminate the estate tax… by creating the proper comprehensive estate plan.
Here are the three things you can do to drive the estate-tax devil away:
(1) Learn all you can (this column is a good start);
(2) No matter what your age, put a complete estate plan into place now (then monitor it every two to four years);
(3) Only work with experienced professionals who can show you how to pass all your wealth — intact —to your family (if you are not sure, get a second opinion).
