Could This Be the End of All Your Estate Tax Problems?March 1, 2010
The answer to the above question is a thundering ‘yes’ for about 99 percent of everyone reading these words, because it is almost certain that the tax law will be changed to make the “unified credit” (the amount of your wealth that can be left to your heirs free of the estate tax) $3.5 million (or more) per person. That’s at least $7 million tax-free for a married couple.
With a $7 million freebie to start if you are married and worth about $14 million (or less), legally beating the estate tax will be an easy-to-attain goal.
The fact is we als have been able to beat the estate tax—whether you were worth $5 million or $50 million. Now, it’s just going to be easier. But let’s face it, an estate plan does absolutely nothing until you enter the pearly gates. Logic tells you that a proper estate plan must include a lifetime plan to address the period from today until you die.
With the new unified credit (at least $3.5 million, $7 million if married) the estate-tax monster won’t be scaring as many people. The goal of this article is to change the you think about estate planning.
For the moment, please pretend you are my client, sitting in my office to talk about your estate plan.
Here’s the first question I typically would ask: “Assuming, (Type 1 clients) you do not have enough wealth to worry about being hit by the estate tax or (Type 2 clients) perhaps you know you will be hit hard by the estate tax but for the moment, forget the awful tax even exists and tell me, what is your single biggest concern?”
Let’s talk about the major difference between Type 1 clients and Type 2 clients separately. (You can only be one of them.) Hands down, the most important concern of a Type 1 client is, “To maintain my lifestyle, and my spouse’s, for as long as we live.” Sure the client has other concerns—stay healthy, transfer the family business to the kids, treat the nonbusiness kids fairly—but lifestyle is als stage center.
So professionally, we quickly take care of the Type 1 client’s death planning: wills, trusts, life insurance. Als, the real emphasis is on lifetime planning: transfer the business to the kids tax-free, yet have dad keep control (via voting stock) for life. Make sure mom and dad have the best health insurance at minimum cost. Create a wage continuation plan for dad (from the family business) if someday he can no longer work. Protect personal assets.
What’s usually the biggest single lifetime planning task? Make sure with the help of others that Type 1 clients get the highest rate of return on their investments, while minimizing risk.