PLANNING FOR YOUR ESTATE
Most people do not realize how devastating the federal estate tax can be to a person's estate. The tax rate currently ranges between 37% and 60%, far higher than the top income tax rates! And then there are New York State taxes and possibly the dreaded "Generation Skipping Transfer Tax," which may result in a total tax on certain assets of 80%. This can be quite a chunk out of your estate, especially if your assets have to be sold at below market prices in order to pay the tax.
When Benjamin Franklin commented that, "In this world, nothing is certain but death and taxes," he was referring to estate taxes. These taxes were imposed by the British Stamp Act and helped instigate the American Revolution. Small wonder then that "death taxes" were used sparingly and with relatively low rates until 1935 when President Roosevelt declared that these taxes were a "very sound policy of encouraging a wider distribution of wealth. "
Perhaps you are one of those people who do not agree with President Roosevelt's philosophy. Maybe you would rather your hard-earned assets go to your family or a charity of your choice rather than to the government? So what are you going to do about it?
Fortunately, estate taxes can be the easiest to avoid - with proper planning. Furthermore, the earlier you implement your estate plan the more you can save.
Now, are you ready to call an attorney as soon as possible? No? Let me guess - death, taxes and attorneys are not high on your list of things to think about. Sadly you are not alone. It is amazing how many people do not even have a Will. Without a Will your estate may not be distributed the way you would like. Your spouse, for example, may not get it all. In addition, if you have young children or plan on having children, you take the risk having a court chose the Guardian. There is simply no excuse for not having a Will. Moreover, people who have Wills should review them at least every five years or whenever circumstances change.
Perhaps, you have a Will, but think your estate is not large enough to worry about estate taxes. After all, there is a $600,000+ exemption. Then again, it may be more likely than you think that your estate will exceed the tax threshold. Hey, you never know. Seriously, life insurance, future value of assets, projected return on investments and future inheritances must all be considered. Many people fail to take these into account. Proceeds from life insurance provide the government with more estate tax revenues than any other single source. Even if an estate will not exceed the tax threshold there are many non-tax reasons to formulate an estate plan.
It is all too easy to put off calling an attorney, but you really will feel better knowing that your affairs are in order. Find a law firm, which is knowledgeable in Estate Planning and Administration. Beware of the firm who spits out boilerplate forms from their word- processors. The attorney you want is the one who will take the time to customize the documents to your personal needs. Often the attorney should coordinate his or her efforts with your accountant and financial planner. Kenneth Redding is a member of Howard C. St. John and Associates, a law firm, which concentrates in Real Estate, Wills, Trusts and Estate Administration.