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Estate Planning

Estate Planning As it has often been said, two things in life are certain: death and taxes. Estate planning is the art of ensuring that one doesn't cause the other. You may already know that some estates, those with a total value of $2,000,000 or less in 2006, escape federal estate tax altogether. People often seriously underestimate the size of their estates and end up with an unanticipated estate tax bill.

If you are a business owner or professional, for instance, there is a good chance that the value of your estate already tops $2,000,000, or will soon. Even if you don't have substantial personal wealth, hidden assets such as pension or profit sharing benefits as well as life insurance may cause your taxable estate to exceed the $2,000,000 threshold. (Under current tax law, the $2,000,000 threshold applies to 2006 and then gradually increases to $3.5 million in 2009 and sunsets in 2010.)

Add it up, add it all up.
At death, Uncle Sam imposes the federal estate tax. In most cases your taxable estate, the amount that is subject to tax, is less than its gross value. That is why one of the first and most important elements in estate planning is calculating this taxable amount. Fortunately, the basic task isn't that difficult. How to get a rough estimate follows.

Prepare a net worth financial statement listing all of your assets and any interests of ownership reduced by any and all liabilities. The total is your net worth. Be certain that you do not overlook hidden assets. Also, when subtracting your liabilities, include estimated funeral and burial expenses (generally upwards of $4,000) and the estimated costs of administering your estate (2% to 5% of the gross value of the estate is average). Now subtract your charitable and spousal bequests and the marital deduction. If applicable, a provision in the tax code allows you to leave your entire estate, no matter its size, to your spouse tax-free. This deduction, however, does not mean that Uncle Sam won't collect estate taxes. The IRS will get what is coming to it, but only after the death of the second spouse.

Remember: while there may be some very helpful tax provisions in the Internal Revenue Code, you must still take the time to plan your estate carefully and wisely, to minimize taxes. The better you plan now, the better you will be able to provide for your family's future.



Securities offered through Walnut Street Securities, Inc. (WSS). Member NASD & SIPC.

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