Avoid giving your assets to the IRS with proper estate planning
Most people are uncomfortable discussing death and estate planning matters, thinking that by talking about what happens once they depart will hasten the arrival of that day. Unfortunately, avoiding these important end-of-life discussions can lead many to fail to set up estate plans, leaving their families and other heirs with a financial mess on their hands.
Many people understand the importance of having a will as a part of their estate plan, and this point was recently driven home at the death of well-known actor, James Gandolfini. While, for most people in New York, estate planning documents are kept private, the famous New Yorker’s will was made public shortly after his untimely death.
Upon disclosing details of his will, experts were quick to point out common estate planning mistakes that often lead to estate litigation and will contests. With a little tax planning, Gandolfini may have avoided tens of millions of dollars of estate tax liability.
Establish a trust
Trusts are an important aspect of estate plans. While Gandolfini may have provided for specific family members outside of his will, he made some huge financial bequests – gifts of money or property via will – to his infant daughter and his sisters that may have been better distributed through trusts.
When providing for a minor child, a trust allows you to specify when and how proceeds are distributed. A trust can contain provisions that allow for maintenance of a young child’s life until he or she reaches an age when each are more able to handle large amounts of money or property. At the designated time, a portion or all of the principle of the trust can be distributed to the child.
Trusts allow assets to be transferred outside of the probate process and can avoid taxation by the Internal Revenue Service (IRS). A trust can be tailored to your specific circumstances and allow you, for example, to provide for someone with special needs or donate property to a favorite charitable organization.
Use the marital deduction
Gandolfini’s widow received an estimated 20 percent of his estate, subjecting the balance to estate taxation. Federal law allows unlimited, tax-free transfers to spouses. By failing to give more to his wife, approximately 80 percent of his estate may have been taxed at a rate of more than 50 percent. While estate taxation does not kick-in until an estate value exceeds $5.25 million, the value of his estate was estimated at $70 million.
Consult an estate planning attorney
If you do not have a will or an estate plan – or you have not recently updated your plan – consult an experienced estate planning lawyer to make sure you are doing all you can to protect your assets for future generations. A little planning now can make a huge financial difference to your family, charitable organizations and any additional heirs. Seek the counsel of an attorney who is knowledgeable about tax planning, elder law and asset protection.