Estate Taxes Are
Voluntary
How To Avoid Huge Estate Taxes
Let’s discuss something that
is usually at the very bottom of your “to-do” list – reducing your
inheritance (estate) taxes! This is not exactly the most exciting
subject to think about. But there are people who should get very
excited about this: the adult children of parents who will leave them a
huge estate tax bill!
Many mature parents today have
the attitude, “Well, I started with nothing, and even after my children
pay the taxes, there will still be plenty left over. It’s a heck of a
lot more than we ever had!” If that is your attitude, then you can stop
reading now. But if you are concerned that your children and
grandchildren could get stuck with a bill from the IRS for $700,000 or
more, then read on!
The good news is that Congress
has changed the rules a bit regarding the amount you can pass to your
children tax-free. The number increases every few years until 2010 and
is currently set at $1,500,000 for 2005. Unless the law is changed, it
will increase to $2 million in 2006. If your combined “gross estate” is
less than that figure, you have no estate tax problem (and you can stop
reading now!) But don’t forget that your life insurance amounts must be
included in the total. Also, if you own a small business, what value
will the IRS place on it?
Your first step should be to
contact an attorney who specializes in estate planning (not all
attorneys do – similar to medicine, there are specialists in this
complex field). The attorney can help you draft a special type of trust
– called an “A-B” or “Credit Shelter” Trust. This document will double
your exemption from $1.5 million to $3 million if you are married. And
this will save your kids about $700,000 in estate taxes!
If you own life insurance, you
should remove it from your estate. How? The policy can be owned by
another kind of trust – called an “Irrevocable Life Insurance Trust.”
The premiums can be part of your “gifting” program (you know, the
$12,000 per person you can give away each year tax free.) Instead of
giving that money directly to your children, why not redirect the money
to pay insurance premiums and leverage the value so that your $12,000
gifts save them hundreds of thousands of dollars in estate taxes? These
two simple steps could preserve up to 97 percent of your estate.
Frankly, there is no reason that your family should have to cough up 30
to 50 percent of the value of your estate in taxes if you have a solid
estate plan.
Estate taxes are voluntary.
There is a way to set things up so the IRS gets nothing. How? Specify
in your will that everything above $1.5 million should be donated to
your favorite charity. That may sound ridiculous, but it illustrates a
very important point: it is possible to totally eliminate estate taxes.
Regarding your family, the government, and charities, remember that you
have the power to decide how much each of those groups will receive.
*****
Cal Brown is Vice-President of The Monitor Group, Inc., a fee-only financial planning firm located in the Tyson's Corner area of McLean, Virginia. As a nationally recognized wealth management firm, The Monitor Group provides investment and financial planning services to more than 190 high net worth client families in Northern Virginia, Maryland, Washington, DC and across the country. Click
here for more information about Cal and The Monitor Group, Inc.
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