"Certainty? In this world nothing is certain but death and taxes." – Benjamin Franklin
Most everyone is familiar with income taxes, but few really understand estate taxes. Estate taxes began long before Franklin 's famous quote. In modern history, Caesar Augustus imposed an estate levy to pay imperial Roman exploits. Since Caesar's day, death and taxes have been known to walk hand in hand. Successful individuals are taxed in life through income tax, but also after death when their estate's accumulation of value is taxed.
Taxation can be ambiguous. The parties who write tax legislation take something that should be simple and straight forward and lace it with rules, exceptions and other qualifiers to assure it is aimed at the intended purpose. Most believe that such tricky tax laws must be written by crafty attorneys and CPAs to ensure themselves full employment. In any case, these laws do not benefit the taxpayers for which they apply.
Estate taxes come into play only at the end of a person's life, and include issues that can be confusing and difficult to grasp. These include wills, trusts, family matters, 2 nd to die issues if married, and the fact that you are dealing with your own death!
If successful, your wealth is probably diversified in many different assets to be passed on or sold. The issues that can evolve around these assets, family members and others are rife with potential conflict.
Estate planning should be more than an aggressive exercise to pay the least, and preferably, no estate taxes. The idea of little to no death tax is only one of many goals when doing your estate planning. This is your life long work and each individual should look at the big picture that includes family, business and the legacy you leave your community.
In the name of good estate planning, here are the most common mistakes I have seen:
All property is jointly owned, typically with a spouse. Not only is this likely to cause family fights and misunderstandings but now the surviving spouse may pay estate taxes needlessly.
Estate taxes have a provision called "Unlimited Marital Deduction." Many falsely believe this can be used to eliminate estate taxes.
Life insurance you own personally or in business is attributed to your estate. Your agent informed you that life insurance is not subject to taxation. This is true regarding "income" taxation, but unless insurance is held in trust in very specific ways, it most often flows into your estate, adding even more value, and then estate taxes.
Leaving retirement plans or IRAs, where the money has not been taxed. This scenario can trigger estate tax and income tax to your children. Income tax and estate tax can combine to a burden as high as 90 percent.
Belief that you can list appreciated property in your estate at some imagined and contrived value, much less than market. The reality is if you have any land, property or investments, each piece is subject to hard and thorough valuations by IRS guidelines. Most times, owners of appreciated property are not good judges of today's value.
When Congress makes one more tax change, then you will get your estate in order. Congress will always be changing tax laws. Waiting only puts your family and estate at risk.
Waiting to do all of your estate planning only once, when your life settles down and you have crystal ball vision. I don't think life was ever intended to settle down. This time will never arrive. Your estate plan, thought out over time is a better plan than one thrown together in haste because of a life threatening matter.
In order to create a successful estate plan that encompasses your desires and objectives, here are some suggestions you can easily put in place:
Conduct an estate analysis where you crunch numbers and make accurate evaluations of your total estate. This is the starting point. If your estate with property, investments, appreciation assets, and life insurance exceeds $1.5 million you need estate planning to avoid the possibility of paying estate taxes.
Have an initial meeting with your closest and best business advisor. Ask them to refer you to an estate tax attorney or CPA who can consult with you about your estate and educate you so you are able to make critical assessments.
Design and implement an estate plan you understand. Complex business and estate affairs are extremely expensive to set-up and maintain, and are difficult to manage. If you don't understand what your advisors are proposing, ask more questions and have a good understanding before you sign documents that may not be what you intended.
When Joe Robbie, the famed owner of the Miami Dolphins and stadium, passed away, his family was left with no option but to sell these treasured assets to pay $47 million to the government.
In contrast, many successful people have left strong legacies including John Harvard, the founder of Harvard, Alfred Nobel from the Nobel Peace Prize, and Cecil Rhodes for whom the Rhodes Scholarship is named. But of special interest, after the passing of Sam Walton, his business has continued to grow and thrive. It is estimated his heirs were passed an estate worth more than $25 billion and no estate taxes were paid to the government.
It is a good time to start an estate plan to leave your legacy.
